Correlation Between Daoming OpticsChemical and China Baoan

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

By analyzing existing cross correlation between Daoming OpticsChemical Co and China Baoan Group, you can compare the effects of market volatilities on Daoming OpticsChemical and China Baoan 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 Daoming OpticsChemical with a short position of China Baoan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daoming OpticsChemical and China Baoan.

Diversification Opportunities for Daoming OpticsChemical and China Baoan

0.4

Correlation Coefficient

Daoming OpticsChemical  China Baoan

Very weak diversification

The 3 months correlation between Daoming and China is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Daoming OpticsChemical Co and China Baoan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Baoan Group and Daoming OpticsChemical 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 Daoming OpticsChemical Co are associated (or correlated) with China Baoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Baoan Group has no effect on the direction of Daoming OpticsChemical i.e., Daoming OpticsChemical and China Baoan go up and down completely randomly.

Pair Corralation between Daoming OpticsChemical and China Baoan

Assuming the 90 days trading horizon Daoming OpticsChemical Co is expected to generate 1.17 times more return on investment than China Baoan. However, Daoming OpticsChemical is 1.17 times more volatile than China Baoan Group. It trades about 0.01 of its potential returns per unit of risk. China Baoan Group is currently generating about 0.01 per unit of risk. If you would invest  826.00  in Daoming OpticsChemical Co on October 21, 2024 and sell it today you would lose (10.00) from holding Daoming OpticsChemical Co or give up 1.21% of portfolio value over 90 days.

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

Daoming OpticsChemical Co  vs.  China Baoan Group

Daoming OpticsChemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Baoan Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Daoming OpticsChemical and China Baoan

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

The idea behind Daoming OpticsChemical Co and China Baoan Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.