Correlation Between Dalian Thermal and EVE Energy

Can any of the company-specific risk be diversified away by investing in both Dalian Thermal and EVE Energy 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 EVE Energy 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 EVE Energy, you can compare the effects of market volatilities on Dalian Thermal and EVE Energy 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 EVE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dalian Thermal and EVE Energy.

Diversification Opportunities for Dalian Thermal and EVE Energy

0.56

Correlation Coefficient

Dalian Thermal  EVE Energy

Very weak diversification

The 3 months correlation between Dalian and EVE is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and EVE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVE Energy 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 EVE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVE Energy has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and EVE Energy go up and down completely randomly.

Pair Corralation between Dalian Thermal and EVE Energy

Assuming the 90 days trading horizon Dalian Thermal Power is expected to under-perform the EVE Energy. In addition to that, Dalian Thermal is 1.56 times more volatile than EVE Energy. It trades about -0.15 of its total potential returns per unit of risk. EVE Energy is currently generating about -0.1 per unit of volatility. If you would invest  4,926  in EVE Energy on October 3, 2024 and sell it today you would lose (252.00) from holding EVE Energy or give up 5.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Dalian Thermal Power  vs.  EVE Energy

Dalian Thermal Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dalian Thermal Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dalian Thermal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

EVE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EVE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dalian Thermal and EVE Energy

The main advantage of trading using opposite Dalian Thermal and EVE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dalian Thermal position performs unexpectedly, EVE Energy 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 EVE Energy will offset losses from the drop in EVE Energy's long position.

The idea behind Dalian Thermal Power and EVE Energy 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.