Correlation Between Dezhan HealthCare and Dongjiang Environmental

Can any of the company-specific risk be diversified away by investing in both Dezhan HealthCare and Dongjiang Environmental 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 Dezhan HealthCare and Dongjiang Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dezhan HealthCare Co and Dongjiang Environmental Co, you can compare the effects of market volatilities on Dezhan HealthCare and Dongjiang Environmental 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 Dezhan HealthCare with a short position of Dongjiang Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dezhan HealthCare and Dongjiang Environmental.

Diversification Opportunities for Dezhan HealthCare and Dongjiang Environmental

0.85

Correlation Coefficient

Dezhan HealthCare  Dongjiang Environmental

Very poor diversification

The 3 months correlation between Dezhan and Dongjiang is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dezhan HealthCare Co and Dongjiang Environmental Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongjiang Environmental and Dezhan HealthCare 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 Dezhan HealthCare Co are associated (or correlated) with Dongjiang Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongjiang Environmental has no effect on the direction of Dezhan HealthCare i.e., Dezhan HealthCare and Dongjiang Environmental go up and down completely randomly.

Pair Corralation between Dezhan HealthCare and Dongjiang Environmental

Assuming the 90 days trading horizon Dezhan HealthCare Co is expected to generate 1.29 times more return on investment than Dongjiang Environmental. However, Dezhan HealthCare is 1.29 times more volatile than Dongjiang Environmental Co. It trades about 0.02 of its potential returns per unit of risk. Dongjiang Environmental Co is currently generating about -0.01 per unit of risk. If you would invest  343.00  in Dezhan HealthCare Co on December 27, 2024 and sell it today you would earn a total of  2.00  from holding Dezhan HealthCare Co or generate 0.58% return on investment over 90 days.

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

Dezhan HealthCare Co  vs.  Dongjiang Environmental Co

Dezhan HealthCare

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dezhan HealthCare Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dezhan HealthCare is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dongjiang Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dongjiang Environmental Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongjiang Environmental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dezhan HealthCare and Dongjiang Environmental

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

The idea behind Dezhan HealthCare Co and Dongjiang Environmental 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.