Correlation Between Innovative Medical and Digital China

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

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

Diversification Opportunities for Innovative Medical and Digital China

0.88

Correlation Coefficient

Innovative Medical  Digital China

Very poor diversification

The 3 months correlation between Innovative and Digital is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Innovative Medical Management 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 Innovative Medical 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 Innovative Medical Management 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 Innovative Medical i.e., Innovative Medical and Digital China go up and down completely randomly.

Pair Corralation between Innovative Medical and Digital China

Assuming the 90 days trading horizon Innovative Medical is expected to generate 1.12 times less return on investment than Digital China. But when comparing it to its historical volatility, Innovative Medical Management is 1.04 times less risky than Digital China. It trades about 0.21 of its potential returns per unit of risk. Digital China Information is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  815.00  in Digital China Information on September 13, 2024 and sell it today you would earn a total of  549.00  from holding Digital China Information or generate 67.36% return on investment over 90 days.

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

Innovative Medical Management  vs.  Digital China Information

Innovative Medical

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovative Medical Management are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Innovative Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Digital China Information

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Innovative Medical and Digital China

The main advantage of trading using opposite Innovative Medical and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innovative Medical 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 Innovative Medical Management 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.