Correlation Between Digital China and Zhongshan Public

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

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

Diversification Opportunities for Digital China and Zhongshan Public

0.71

Correlation Coefficient

Digital China  Zhongshan Public

Poor diversification

The 3 months correlation between Digital and Zhongshan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Zhongshan Public Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongshan Public Uti and Digital China 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 Digital China Information are associated (or correlated) with Zhongshan Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongshan Public Uti has no effect on the direction of Digital China i.e., Digital China and Zhongshan Public go up and down completely randomly.

Pair Corralation between Digital China and Zhongshan Public

Assuming the 90 days trading horizon Digital China Information is expected to generate 2.05 times more return on investment than Zhongshan Public. However, Digital China is 2.05 times more volatile than Zhongshan Public Utilities. It trades about -0.02 of its potential returns per unit of risk. Zhongshan Public Utilities is currently generating about -0.05 per unit of risk. If you would invest  1,246  in Digital China Information on October 3, 2024 and sell it today you would lose (126.00) from holding Digital China Information or give up 10.11% of portfolio value over 90 days.

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

Digital China Information  vs.  Zhongshan Public Utilities

Digital China Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

Zhongshan Public Uti

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhongshan Public Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Digital China and Zhongshan Public

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

The idea behind Digital China Information and Zhongshan Public Utilities 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.