Correlation Between Dalian Thermal and Nexchip Semiconductor

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

Diversification Opportunities for Dalian Thermal and Nexchip Semiconductor

0.64

Correlation Coefficient

Dalian Thermal  Nexchip Semiconductor

Poor diversification

The 3 months correlation between Dalian and Nexchip is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dalian Thermal Power and Nexchip Semiconductor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexchip Semiconductor 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 Nexchip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexchip Semiconductor has no effect on the direction of Dalian Thermal i.e., Dalian Thermal and Nexchip Semiconductor go up and down completely randomly.

Pair Corralation between Dalian Thermal and Nexchip Semiconductor

Assuming the 90 days trading horizon Dalian Thermal Power is expected to under-perform the Nexchip Semiconductor. In addition to that, Dalian Thermal is 1.42 times more volatile than Nexchip Semiconductor Corp. It trades about -0.42 of its total potential returns per unit of risk. Nexchip Semiconductor Corp is currently generating about -0.46 per unit of volatility. If you would invest  2,750  in Nexchip Semiconductor Corp on October 8, 2024 and sell it today you would lose (560.00) from holding Nexchip Semiconductor Corp or give up 20.36% 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.  Nexchip Semiconductor Corp

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.

Nexchip Semiconductor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nexchip Semiconductor Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nexchip Semiconductor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dalian Thermal and Nexchip Semiconductor

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

The idea behind Dalian Thermal Power and Nexchip Semiconductor 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.

Check out your portfolio center.

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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.