Correlation Between Datang International and AGL Energy

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

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

Diversification Opportunities for Datang International and AGL Energy

-0.19

Correlation Coefficient

Datang International  AGL Energy

Good diversification

The 3 months correlation between Datang and AGL is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Datang International Power and AGL Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGL Energy Limited and Datang International 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 Datang International Power are associated (or correlated) with AGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGL Energy Limited has no effect on the direction of Datang International i.e., Datang International and AGL Energy go up and down completely randomly.

Pair Corralation between Datang International and AGL Energy

Assuming the 90 days horizon Datang International Power is expected to generate 1.92 times more return on investment than AGL Energy. However, Datang International is 1.92 times more volatile than AGL Energy Limited. It trades about 0.17 of its potential returns per unit of risk. AGL Energy Limited is currently generating about -0.04 per unit of risk. If you would invest  24.00  in Datang International Power on May 4, 2025 and sell it today you would earn a total of  2.00  from holding Datang International Power or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	54.84%
Values	Daily Returns

Datang International Power  vs.  AGL Energy Limited

Datang International

Risk-Adjusted Performance

Good

Over the last 90 days Datang International Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile technical and fundamental indicators, Datang International reported solid returns over the last few months and may actually be approaching a breakup point.

AGL Energy Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days AGL Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AGL Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Datang International and AGL Energy

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

The idea behind Datang International Power and AGL Energy Limited 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.