Correlation Between Dalian Thermal and Zangge Holding

Can any of the company-specific risk be diversified away by investing in both Dalian Thermal and Zangge Holding at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Dalian Thermal and Zangge Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dalian Thermal Power and Zangge Holding Co, you can compare the effects of market volatilities on Dalian Thermal and Zangge Holding and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Dalian Thermal with a short position of Zangge Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dalian Thermal and Zangge Holding.

Diversification Opportunities for Dalian Thermal and Zangge Holding

0.75

Correlation Coefficient

Dalian Thermal  Zangge Holding

Poor diversification

The 3 months correlation between Dalian and Zangge is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Zangge Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zangge Holding and Dalian Thermal is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Dalian Thermal Power are associated (or correlated) with Zangge Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zangge Holding has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Zangge Holding go up and down completely randomly.

Pair Corralation between Dalian Thermal and Zangge Holding

Assuming the 90 days trading horizon Dalian Thermal Power is expected to under-perform the Zangge Holding. In addition to that, Dalian Thermal is 2.52 times more volatile than Zangge Holding Co. It trades about -0.15 of its total potential returns per unit of risk. Zangge Holding Co is currently generating about -0.15 per unit of volatility. If you would invest  2,828  in Zangge Holding Co on September 25, 2024 and sell it today you would lose (129.00) from holding Zangge Holding Co or give up 4.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Dalian Thermal Power  vs.  Zangge Holding Co

Dalian Thermal Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dalian Thermal sustained solid returns over the last few months and may actually be approaching a breakup point.

Zangge Holding

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zangge Holding Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zangge Holding may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dalian Thermal and Zangge Holding

The main advantage of trading using opposite Dalian Thermal and Zangge Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dalian Thermal position performs unexpectedly, Zangge Holding can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Zangge Holding will offset losses from the drop in Zangge Holding's long position.

The idea behind Dalian Thermal Power and Zangge Holding Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.