Correlation Between Zhongrun Resources and Digital China

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

By analyzing existing cross correlation between Zhongrun Resources Investment and Digital China Information, you can compare the effects of market volatilities on Zhongrun Resources and Digital China 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 Zhongrun Resources with a short position of Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongrun Resources and Digital China.

Diversification Opportunities for Zhongrun Resources and Digital China

0.76

Correlation Coefficient

Zhongrun Resources  Digital China

Poor diversification

The 3 months correlation between Zhongrun and Digital is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Zhongrun Resources Investment and Digital China Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Information and Zhongrun Resources 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 Zhongrun Resources Investment are associated (or correlated) with Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Information has no effect on the direction of Zhongrun Resources i.e., Zhongrun Resources and Digital China go up and down completely randomly.

Pair Corralation between Zhongrun Resources and Digital China

Assuming the 90 days trading horizon Zhongrun Resources Investment is expected to generate 1.42 times more return on investment than Digital China. However, Zhongrun Resources is 1.42 times more volatile than Digital China Information. It trades about 0.02 of its potential returns per unit of risk. Digital China Information is currently generating about 0.03 per unit of risk. If you would invest  331.00  in Zhongrun Resources Investment on September 24, 2024 and sell it today you would earn a total of  28.00  from holding Zhongrun Resources Investment or generate 8.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Zhongrun Resources Investment  vs.  Digital China Information

Zhongrun Resources

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongrun Resources Investment are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongrun Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

Digital China Information

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhongrun Resources and Digital China

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

The idea behind Zhongrun Resources Investment and Digital China Information 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.