Correlation Between China Vanke and Dazhong Transportation

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

By analyzing existing cross correlation between China Vanke Co and Dazhong Transportation Group, you can compare the effects of market volatilities on China Vanke and Dazhong Transportation 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 Vanke with a short position of Dazhong Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Vanke and Dazhong Transportation.

Diversification Opportunities for China Vanke and Dazhong Transportation

0.26

Correlation Coefficient

China Vanke  Dazhong Transportation

Modest diversification

The 3 months correlation between China and Dazhong is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Vanke Co and Dazhong Transportation Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dazhong Transportation and China Vanke 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 Vanke Co are associated (or correlated) with Dazhong Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dazhong Transportation has no effect on the direction of China Vanke i.e., China Vanke and Dazhong Transportation go up and down completely randomly.

Pair Corralation between China Vanke and Dazhong Transportation

Assuming the 90 days trading horizon China Vanke Co is expected to under-perform the Dazhong Transportation. But the stock apears to be less risky and, when comparing its historical volatility, China Vanke Co is 1.0 times less risky than Dazhong Transportation. The stock trades about -0.22 of its potential returns per unit of risk. The Dazhong Transportation Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Dazhong Transportation Group on October 5, 2024 and sell it today you would lose (1.00) from holding Dazhong Transportation Group or give up 4.35% of portfolio value over 90 days.

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

China Vanke Co  vs.  Dazhong Transportation Group

China Vanke

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dazhong Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dazhong Transportation Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dazhong Transportation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Vanke and Dazhong Transportation

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

The idea behind China Vanke Co and Dazhong Transportation Group 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.