Correlation Between Dalian Thermal and Guangdong Banbao

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

Diversification Opportunities for Dalian Thermal and Guangdong Banbao

0.66

Correlation Coefficient

Dalian Thermal  Guangdong Banbao

Poor diversification

The 3 months correlation between Dalian and Guangdong is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Guangdong Banbao Toy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Banbao Toy 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 Guangdong Banbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Banbao Toy has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Guangdong Banbao go up and down completely randomly.

Pair Corralation between Dalian Thermal and Guangdong Banbao

Assuming the 90 days trading horizon Dalian Thermal Power is expected to under-perform the Guangdong Banbao. But the stock apears to be less risky and, when comparing its historical volatility, Dalian Thermal Power is 1.0 times less risky than Guangdong Banbao. The stock trades about 0.0 of its potential returns per unit of risk. The Guangdong Banbao Toy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,110  in Guangdong Banbao Toy on October 10, 2024 and sell it today you would earn a total of  23.00  from holding Guangdong Banbao Toy or generate 1.09% return on investment over 90 days.

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

Dalian Thermal Power  vs.  Guangdong Banbao Toy

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.

Guangdong Banbao Toy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Banbao Toy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Banbao sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dalian Thermal and Guangdong Banbao

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

The idea behind Dalian Thermal Power and Guangdong Banbao Toy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.