Correlation Between Ningbo Thermal and China Railway

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

Diversification Opportunities for Ningbo Thermal and China Railway

0.41

Correlation Coefficient

Ningbo Thermal  China Railway

Very weak diversification

The 3 months correlation between Ningbo and China is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Thermal Power and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr 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 China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Constr has no effect on the direction of Ningbo Thermal i.e., Ningbo Thermal and China Railway go up and down completely randomly.

Pair Corralation between Ningbo Thermal and China Railway

Assuming the 90 days trading horizon Ningbo Thermal is expected to generate 2.73 times less return on investment than China Railway. But when comparing it to its historical volatility, Ningbo Thermal Power is 1.05 times less risky than China Railway. It trades about 0.01 of its potential returns per unit of risk. China Railway Construction is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  758.00  in China Railway Construction on September 28, 2024 and sell it today you would earn a total of  172.00  from holding China Railway Construction or generate 22.69% 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.  China Railway Construction

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Railway Constr

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Ningbo Thermal and China Railway

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

The idea behind Ningbo Thermal Power and China Railway Construction 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.