Correlation Between Dalian Thermal and Pengxin International

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

Diversification Opportunities for Dalian Thermal and Pengxin International

0.32

Correlation Coefficient

Dalian Thermal  Pengxin International

Weak diversification

The 3 months correlation between Dalian and Pengxin is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Pengxin International Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pengxin International 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 Pengxin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pengxin International has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Pengxin International go up and down completely randomly.

Pair Corralation between Dalian Thermal and Pengxin International

Assuming the 90 days trading horizon Dalian Thermal Power is expected to under-perform the Pengxin International. But the stock apears to be less risky and, when comparing its historical volatility, Dalian Thermal Power is 1.16 times less risky than Pengxin International. The stock trades about -0.11 of its potential returns per unit of risk. The Pengxin International Mining is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  344.00  in Pengxin International Mining on October 6, 2024 and sell it today you would lose (33.00) from holding Pengxin International Mining or give up 9.59% of portfolio value over 90 days.

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

Dalian Thermal Power  vs.  Pengxin International Mining

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pengxin International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dalian Thermal and Pengxin International

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

The idea behind Dalian Thermal Power and Pengxin International Mining 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..