Correlation Between Ningbo Thermal and Tibet Huayu

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

Diversification Opportunities for Ningbo Thermal and Tibet Huayu

0.45

Correlation Coefficient

Ningbo Thermal  Tibet Huayu

Very weak diversification

The 3 months correlation between Ningbo and Tibet is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Thermal Power and Tibet Huayu Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tibet Huayu Mining 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 Tibet Huayu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tibet Huayu Mining has no effect on the direction of Ningbo Thermal i.e., Ningbo Thermal and Tibet Huayu go up and down completely randomly.

Pair Corralation between Ningbo Thermal and Tibet Huayu

Assuming the 90 days trading horizon Ningbo Thermal Power is expected to generate 0.95 times more return on investment than Tibet Huayu. However, Ningbo Thermal Power is 1.05 times less risky than Tibet Huayu. It trades about 0.06 of its potential returns per unit of risk. Tibet Huayu Mining is currently generating about 0.03 per unit of risk. If you would invest  391.00  in Ningbo Thermal Power on September 30, 2024 and sell it today you would earn a total of  39.00  from holding Ningbo Thermal Power or generate 9.97% return on investment over 90 days.

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

Ningbo Thermal Power  vs.  Tibet Huayu Mining

Ningbo Thermal Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Thermal Power are ranked lower than 4 (%) 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.

Tibet Huayu Mining

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tibet Huayu Mining are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Tibet Huayu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ningbo Thermal and Tibet Huayu

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

The idea behind Ningbo Thermal Power and Tibet Huayu Mining 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.