Correlation Between Ningbo Thermal and Dalian Thermal

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

Diversification Opportunities for Ningbo Thermal and Dalian Thermal

0.28

Correlation Coefficient

Ningbo Thermal  Dalian Thermal

Modest diversification

The 3 months correlation between Ningbo and Dalian is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Thermal Power and Dalian Thermal Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dalian Thermal Power 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 Dalian Thermal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dalian Thermal Power has no effect on the direction of Ningbo Thermal i.e., Ningbo Thermal and Dalian Thermal go up and down completely randomly.

Pair Corralation between Ningbo Thermal and Dalian Thermal

Assuming the 90 days trading horizon Ningbo Thermal Power is expected to generate 1.27 times more return on investment than Dalian Thermal. However, Ningbo Thermal is 1.27 times more volatile than Dalian Thermal Power. It trades about 0.04 of its potential returns per unit of risk. Dalian Thermal Power is currently generating about -0.14 per unit of risk. If you would invest  404.00  in Ningbo Thermal Power on December 2, 2024 and sell it today you would earn a total of  20.00  from holding Ningbo Thermal Power or generate 4.95% return on investment over 90 days.

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

Ningbo Thermal Power  vs.  Dalian Thermal Power

Ningbo Thermal Power

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Thermal Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Thermal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Dalian Thermal Power

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Ningbo Thermal and Dalian Thermal

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

The idea behind Ningbo Thermal Power and Dalian Thermal Power 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.