Correlation Between China Aluminum and Ningbo Thermal

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

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

Diversification Opportunities for China Aluminum and Ningbo Thermal

0.27

Correlation Coefficient

China Aluminum  Ningbo Thermal

Modest diversification

The 3 months correlation between China and Ningbo is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding China Aluminum International and Ningbo Thermal Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Thermal Power and China Aluminum 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 China Aluminum International are associated (or correlated) with Ningbo Thermal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Thermal Power has no effect on the direction of China Aluminum i.e., China Aluminum and Ningbo Thermal go up and down completely randomly.

Pair Corralation between China Aluminum and Ningbo Thermal

Assuming the 90 days trading horizon China Aluminum is expected to generate 2.34 times less return on investment than Ningbo Thermal. But when comparing it to its historical volatility, China Aluminum International is 1.57 times less risky than Ningbo Thermal. It trades about 0.11 of its potential returns per unit of risk. Ningbo Thermal Power is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  395.00  in Ningbo Thermal Power on December 2, 2024 and sell it today you would earn a total of  29.00  from holding Ningbo Thermal Power or generate 7.34% return on investment over 90 days.

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

China Aluminum International  vs.  Ningbo Thermal Power

China Aluminum Inter

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Aluminum International 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.

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.

Pair Trading with China Aluminum and Ningbo Thermal

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

The idea behind China Aluminum International and Ningbo 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..