Correlation Between Digital China and Tongyu Communication

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

Diversification Opportunities for Digital China and Tongyu Communication

0.46

Correlation Coefficient

Digital China  Tongyu Communication

Very weak diversification

The 3 months correlation between Digital and Tongyu is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Tongyu Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongyu Communication 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 Tongyu Communication. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongyu Communication has no effect on the direction of Digital China i.e., Digital China and Tongyu Communication go up and down completely randomly.

Pair Corralation between Digital China and Tongyu Communication

Assuming the 90 days trading horizon Digital China Information is expected to under-perform the Tongyu Communication. In addition to that, Digital China is 1.03 times more volatile than Tongyu Communication. It trades about -0.01 of its total potential returns per unit of risk. Tongyu Communication is currently generating about 0.08 per unit of volatility. If you would invest  1,206  in Tongyu Communication on October 17, 2024 and sell it today you would earn a total of  208.00  from holding Tongyu Communication or generate 17.25% return on investment over 90 days.

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

Digital China Information  vs.  Tongyu Communication

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.

Tongyu Communication

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tongyu Communication are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongyu Communication sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital China and Tongyu Communication

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

The idea behind Digital China Information and Tongyu Communication 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.