Correlation Between Digital China and Vats Liquor

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

Diversification Opportunities for Digital China and Vats Liquor

0.73

Correlation Coefficient

Digital China  Vats Liquor

Poor diversification

The 3 months correlation between Digital and Vats is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Vats Liquor Chain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vats Liquor Chain 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 Vats Liquor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vats Liquor Chain has no effect on the direction of Digital China i.e., Digital China and Vats Liquor go up and down completely randomly.

Pair Corralation between Digital China and Vats Liquor

Assuming the 90 days trading horizon Digital China Information is expected to under-perform the Vats Liquor. In addition to that, Digital China is 1.1 times more volatile than Vats Liquor Chain. It trades about -0.15 of its total potential returns per unit of risk. Vats Liquor Chain is currently generating about -0.09 per unit of volatility. If you would invest  1,892  in Vats Liquor Chain on October 18, 2024 and sell it today you would lose (153.00) from holding Vats Liquor Chain or give up 8.09% of portfolio value over 90 days.

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

Digital China Information  vs.  Vats Liquor Chain

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.

Vats Liquor Chain

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Digital China and Vats Liquor

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

The idea behind Digital China Information and Vats Liquor Chain 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 Global Correlations module to find global opportunities by holding instruments from different markets.