Correlation Between Dalian Thermal and SAIC

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

Diversification Opportunities for Dalian Thermal and SAIC

0.65

Correlation Coefficient

Dalian Thermal  SAIC

Poor diversification

The 3 months correlation between Dalian and SAIC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and SAIC Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAIC Motor Corp 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 SAIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAIC Motor Corp has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and SAIC go up and down completely randomly.

Pair Corralation between Dalian Thermal and SAIC

Assuming the 90 days trading horizon Dalian Thermal Power is expected to generate 0.9 times more return on investment than SAIC. However, Dalian Thermal Power is 1.11 times less risky than SAIC. It trades about -0.07 of its potential returns per unit of risk. SAIC Motor Corp is currently generating about -0.08 per unit of risk. If you would invest  814.00  in Dalian Thermal Power on September 24, 2024 and sell it today you would lose (45.00) from holding Dalian Thermal Power or give up 5.53% of portfolio value over 90 days.

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

Dalian Thermal Power  vs.  SAIC Motor Corp

Dalian Thermal Power

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dalian Thermal Power are ranked lower than 8 (%) 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.

SAIC Motor Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAIC Motor Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SAIC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dalian Thermal and SAIC

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

The idea behind Dalian Thermal Power and SAIC Motor Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.