Correlation Between Ningbo Thermal and Gansu Huangtai

Can any of the company-specific risk be diversified away by investing in both Ningbo Thermal and Gansu Huangtai 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 Ningbo Thermal and Gansu Huangtai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ningbo Thermal Power and Gansu Huangtai Wine marketing, you can compare the effects of market volatilities on Ningbo Thermal and Gansu Huangtai 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 Ningbo Thermal with a short position of Gansu Huangtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo Thermal and Gansu Huangtai.

Diversification Opportunities for Ningbo Thermal and Gansu Huangtai

0.82

Correlation Coefficient

Ningbo Thermal  Gansu Huangtai

Very poor diversification

The 3 months correlation between Ningbo and Gansu is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Thermal Power and Gansu Huangtai Wine marketing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Huangtai Wine and Ningbo 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 Ningbo Thermal Power are associated (or correlated) with Gansu Huangtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Huangtai Wine has no effect on the direction of Ningbo Thermal i.e., Ningbo Thermal and Gansu Huangtai go up and down completely randomly.

Pair Corralation between Ningbo Thermal and Gansu Huangtai

Assuming the 90 days trading horizon Ningbo Thermal Power is expected to generate 0.57 times more return on investment than Gansu Huangtai. However, Ningbo Thermal Power is 1.76 times less risky than Gansu Huangtai. It trades about 0.34 of its potential returns per unit of risk. Gansu Huangtai Wine marketing is currently generating about 0.17 per unit of risk. If you would invest  332.00  in Ningbo Thermal Power on September 21, 2024 and sell it today you would earn a total of  243.00  from holding Ningbo Thermal Power or generate 73.19% return on investment over 90 days.

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

Ningbo Thermal Power  vs.  Gansu Huangtai Wine marketing

Ningbo Thermal Power

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Thermal Power are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Thermal sustained solid returns over the last few months and may actually be approaching a breakup point.

Gansu Huangtai Wine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Huangtai Wine marketing are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Huangtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ningbo Thermal and Gansu Huangtai

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

The idea behind Ningbo Thermal Power and Gansu Huangtai Wine marketing 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 Valuation module to check real value of public entities based on technical and fundamental data.