Correlation Between Dalian Thermal and Hainan Mining

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

Diversification Opportunities for Dalian Thermal and Hainan Mining

0.89

Correlation Coefficient

Dalian Thermal  Hainan Mining

Very poor diversification

The 3 months correlation between Dalian and Hainan is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Hainan Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Mining 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 Hainan Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Mining has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Hainan Mining go up and down completely randomly.

Pair Corralation between Dalian Thermal and Hainan Mining

Assuming the 90 days trading horizon Dalian Thermal Power is expected to generate 1.46 times more return on investment than Hainan Mining. However, Dalian Thermal is 1.46 times more volatile than Hainan Mining Co. It trades about 0.15 of its potential returns per unit of risk. Hainan Mining Co is currently generating about 0.2 per unit of risk. If you would invest  578.00  in Dalian Thermal Power on September 17, 2024 and sell it today you would earn a total of  232.00  from holding Dalian Thermal Power or generate 40.14% 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.  Hainan Mining Co

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.

Hainan Mining

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Mining Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dalian Thermal and Hainan Mining

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

The idea behind Dalian Thermal Power and Hainan Mining 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.