Correlation Between Digital China and Guocheng Mining

Can any of the company-specific risk be diversified away by investing in both Digital China and Guocheng Mining 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 Guocheng Mining 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 Guocheng Mining Co, you can compare the effects of market volatilities on Digital China and Guocheng Mining 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 Guocheng Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital China and Guocheng Mining.

Diversification Opportunities for Digital China and Guocheng Mining

0.83

Correlation Coefficient

Digital China  Guocheng Mining

Very poor diversification

The 3 months correlation between Digital and Guocheng is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Guocheng Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guocheng Mining 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 Guocheng Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guocheng Mining has no effect on the direction of Digital China i.e., Digital China and Guocheng Mining go up and down completely randomly.

Pair Corralation between Digital China and Guocheng Mining

Assuming the 90 days trading horizon Digital China Information is expected to generate 1.07 times more return on investment than Guocheng Mining. However, Digital China is 1.07 times more volatile than Guocheng Mining Co. It trades about 0.17 of its potential returns per unit of risk. Guocheng Mining Co is currently generating about 0.18 per unit of risk. If you would invest  867.00  in Digital China Information on September 22, 2024 and sell it today you would earn a total of  451.00  from holding Digital China Information or generate 52.02% return on investment over 90 days.

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

Digital China Information  vs.  Guocheng Mining Co

Digital China Information

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 13 (%) 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.

Guocheng Mining

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guocheng Mining Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guocheng Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital China and Guocheng Mining

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

The idea behind Digital China Information and Guocheng Mining Co 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.