Correlation Between Dalian Thermal and Zhejiang Yayi

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

Diversification Opportunities for Dalian Thermal and Zhejiang Yayi

0.87

Correlation Coefficient

Dalian Thermal  Zhejiang Yayi

Very poor diversification

The 3 months correlation between Dalian and Zhejiang is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Zhejiang Yayi Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Yayi Metal 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 Zhejiang Yayi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Yayi Metal has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Zhejiang Yayi go up and down completely randomly.

Pair Corralation between Dalian Thermal and Zhejiang Yayi

Assuming the 90 days trading horizon Dalian Thermal is expected to generate 1.33 times less return on investment than Zhejiang Yayi. In addition to that, Dalian Thermal is 1.21 times more volatile than Zhejiang Yayi Metal. It trades about 0.15 of its total potential returns per unit of risk. Zhejiang Yayi Metal is currently generating about 0.23 per unit of volatility. If you would invest  1,821  in Zhejiang Yayi Metal on September 16, 2024 and sell it today you would earn a total of  1,146  from holding Zhejiang Yayi Metal or generate 62.93% return on investment over 90 days.

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

Dalian Thermal Power  vs.  Zhejiang Yayi Metal

Dalian Thermal Power

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 11 (%) 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.

Zhejiang Yayi Metal

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Yayi Metal are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Yayi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dalian Thermal and Zhejiang Yayi

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

The idea behind Dalian Thermal Power and Zhejiang Yayi Metal 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.