Correlation Between Digital China and Ningbo Kangqiang

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

Diversification Opportunities for Digital China and Ningbo Kangqiang

0.03

Correlation Coefficient

Digital China  Ningbo Kangqiang

Significant diversification

The 3 months correlation between Digital and Ningbo is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Ningbo Kangqiang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Kangqiang Ele 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 Ningbo Kangqiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Kangqiang Ele has no effect on the direction of Digital China i.e., Digital China and Ningbo Kangqiang go up and down completely randomly.

Pair Corralation between Digital China and Ningbo Kangqiang

Assuming the 90 days trading horizon Digital China Information is expected to generate 1.08 times more return on investment than Ningbo Kangqiang. However, Digital China is 1.08 times more volatile than Ningbo Kangqiang Electronics. It trades about 0.06 of its potential returns per unit of risk. Ningbo Kangqiang Electronics is currently generating about 0.04 per unit of risk. If you would invest  1,181  in Digital China Information on December 25, 2024 and sell it today you would earn a total of  111.00  from holding Digital China Information or generate 9.4% 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.  Ningbo Kangqiang Electronics

Digital China Information

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 4 (%) 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.

Ningbo Kangqiang Ele

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Digital China and Ningbo Kangqiang

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

The idea behind Digital China Information and Ningbo Kangqiang Electronics 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.