Correlation Between ChengDu Hi and Digital China

Can any of the company-specific risk be diversified away by investing in both ChengDu Hi and Digital China 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 ChengDu Hi and Digital China into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ChengDu Hi Tech Development and Digital China Information, you can compare the effects of market volatilities on ChengDu Hi and Digital China 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 ChengDu Hi with a short position of Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of ChengDu Hi and Digital China.

Diversification Opportunities for ChengDu Hi and Digital China

0.7

Correlation Coefficient

ChengDu Hi  Digital China

Poor diversification

The 3 months correlation between ChengDu and Digital is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and Digital China Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Information and ChengDu Hi 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 ChengDu Hi Tech Development are associated (or correlated) with Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Information has no effect on the direction of ChengDu Hi i.e., ChengDu Hi and Digital China go up and down completely randomly.

Pair Corralation between ChengDu Hi and Digital China

Assuming the 90 days trading horizon ChengDu Hi Tech Development is expected to generate 1.07 times more return on investment than Digital China. However, ChengDu Hi is 1.07 times more volatile than Digital China Information. It trades about 0.1 of its potential returns per unit of risk. Digital China Information is currently generating about 0.07 per unit of risk. If you would invest  4,369  in ChengDu Hi Tech Development on September 29, 2024 and sell it today you would earn a total of  1,996  from holding ChengDu Hi Tech Development or generate 45.69% return on investment over 90 days.

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

ChengDu Hi Tech Development  vs.  Digital China Information

ChengDu Hi Tech

Risk-Adjusted Performance

9 of 100

OK

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

Digital China Information

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ChengDu Hi and Digital China

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

The idea behind ChengDu Hi Tech Development and Digital China Information 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.

Check out your portfolio center.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.