Correlation Between China DatangRenewable and Datang International

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

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

Diversification Opportunities for China DatangRenewable and Datang International

0.07

Correlation Coefficient

China DatangRenewable  Datang International

Significant diversification

The 3 months correlation between China and Datang is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding China Datang and Datang International Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datang International and China DatangRenewable 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 Datang 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 China DatangRenewable i.e., China DatangRenewable and Datang International go up and down completely randomly.

Pair Corralation between China DatangRenewable and Datang International

Assuming the 90 days horizon China Datang is expected to generate 1.3 times more return on investment than Datang International. However, China DatangRenewable is 1.3 times more volatile than Datang International Power. It trades about 0.09 of its potential returns per unit of risk. Datang International Power is currently generating about 0.04 per unit of risk. If you would invest  11.00  in China Datang on October 5, 2024 and sell it today you would earn a total of  14.00  from holding China Datang or generate 127.27% return on investment over 90 days.

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

China Datang  vs.  Datang International Power

China DatangRenewable

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days China Datang has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, China DatangRenewable may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 fragile 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.

Pair Trading with China DatangRenewable and Datang International

The main advantage of trading using opposite China DatangRenewable and Datang International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China DatangRenewable 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 China Datang 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 CEOs Directory module to screen CEOs from public companies around the world.