Correlation Between Digital China and Shenzhen MTC

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

Diversification Opportunities for Digital China and Shenzhen MTC

0.86

Correlation Coefficient

Digital China  Shenzhen MTC

Very poor diversification

The 3 months correlation between Digital and Shenzhen is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Shenzhen MTC Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen MTC 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 Shenzhen MTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen MTC has no effect on the direction of Digital China i.e., Digital China and Shenzhen MTC go up and down completely randomly.

Pair Corralation between Digital China and Shenzhen MTC

Assuming the 90 days trading horizon Digital China Information is expected to generate 1.37 times more return on investment than Shenzhen MTC. However, Digital China is 1.37 times more volatile than Shenzhen MTC Co. It trades about 0.19 of its potential returns per unit of risk. Shenzhen MTC Co is currently generating about 0.12 per unit of risk. If you would invest  836.00  in Digital China Information on September 12, 2024 and sell it today you would earn a total of  404.00  from holding Digital China Information or generate 48.33% 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.  Shenzhen MTC Co

Digital China Information

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 14 (%) 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.

Shenzhen MTC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen MTC Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen MTC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital China and Shenzhen MTC

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

The idea behind Digital China Information and Shenzhen MTC 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.