Correlation Between Digital China and Xiandai Investment

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

Diversification Opportunities for Digital China and Xiandai Investment

0.06

Correlation Coefficient

Digital China  Xiandai Investment

Significant diversification

The 3 months correlation between Digital and Xiandai is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Xiandai Investment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiandai Investment 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 Xiandai Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiandai Investment has no effect on the direction of Digital China i.e., Digital China and Xiandai Investment go up and down completely randomly.

Pair Corralation between Digital China and Xiandai Investment

Assuming the 90 days trading horizon Digital China Information is expected to generate 3.98 times more return on investment than Xiandai Investment. However, Digital China is 3.98 times more volatile than Xiandai Investment Co. It trades about 0.03 of its potential returns per unit of risk. Xiandai Investment Co is currently generating about -0.1 per unit of risk. If you would invest  1,183  in Digital China Information on December 30, 2024 and sell it today you would earn a total of  23.00  from holding Digital China Information or generate 1.94% return on investment over 90 days.

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

Digital China Information  vs.  Xiandai Investment Co

Digital China Information

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Xiandai Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiandai Investment Co 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 Xiandai Investment

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

The idea behind Digital China Information and Xiandai Investment 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.