Correlation Between EuropaCorp and Datang International

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

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

Diversification Opportunities for EuropaCorp and Datang International

0.41

Correlation Coefficient

EuropaCorp  Datang International

Very weak diversification

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

Pair Corralation between EuropaCorp and Datang International

Assuming the 90 days horizon EuropaCorp is expected to under-perform the Datang International. In addition to that, EuropaCorp is 1.53 times more volatile than Datang International Power. It trades about -0.05 of its total potential returns per unit of risk. Datang International Power is currently generating about -0.05 per unit of volatility. If you would invest  18.00  in Datang International Power on October 22, 2024 and sell it today you would lose (2.00) from holding Datang International Power or give up 11.11% of portfolio value over 90 days.

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

EuropaCorp  vs.  Datang International Power

EuropaCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuropaCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Datang International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Datang International Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with EuropaCorp and Datang International

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

The idea behind EuropaCorp and Datang International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.