Correlation Between Digital China and Eyebright Medical

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

Diversification Opportunities for Digital China and Eyebright Medical

0.09

Correlation Coefficient

Digital China  Eyebright Medical

Significant diversification

The 3 months correlation between Digital and Eyebright is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Eyebright Medical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eyebright Medical 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 Eyebright Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eyebright Medical has no effect on the direction of Digital China i.e., Digital China and Eyebright Medical go up and down completely randomly.

Pair Corralation between Digital China and Eyebright Medical

Assuming the 90 days trading horizon Digital China Information is expected to under-perform the Eyebright Medical. In addition to that, Digital China is 1.32 times more volatile than Eyebright Medical Technology. It trades about -0.03 of its total potential returns per unit of risk. Eyebright Medical Technology is currently generating about 0.03 per unit of volatility. If you would invest  9,174  in Eyebright Medical Technology on October 16, 2024 and sell it today you would earn a total of  233.00  from holding Eyebright Medical Technology or generate 2.54% 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.  Eyebright Medical Technology

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 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.

Eyebright Medical

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eyebright Medical Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Eyebright Medical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Digital China and Eyebright Medical

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

The idea behind Digital China Information and Eyebright Medical Technology 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.