Correlation Between DO Home and Tonghua Grape

Can any of the company-specific risk be diversified away by investing in both DO Home and Tonghua Grape 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 DO Home and Tonghua Grape into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DO Home Collection and Tonghua Grape Wine, you can compare the effects of market volatilities on DO Home and Tonghua Grape 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 DO Home with a short position of Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of DO Home and Tonghua Grape.

Diversification Opportunities for DO Home and Tonghua Grape

0.79

Correlation Coefficient

DO Home  Tonghua Grape

Poor diversification

The 3 months correlation between 002798 and Tonghua is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding DO Home Collection and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine and DO Home 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 DO Home Collection are associated (or correlated) with Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of DO Home i.e., DO Home and Tonghua Grape go up and down completely randomly.

Pair Corralation between DO Home and Tonghua Grape

Assuming the 90 days trading horizon DO Home Collection is expected to generate 1.6 times more return on investment than Tonghua Grape. However, DO Home is 1.6 times more volatile than Tonghua Grape Wine. It trades about -0.01 of its potential returns per unit of risk. Tonghua Grape Wine is currently generating about -0.04 per unit of risk. If you would invest  392.00  in DO Home Collection on October 24, 2024 and sell it today you would lose (25.00) from holding DO Home Collection or give up 6.38% of portfolio value over 90 days.

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

DO Home Collection  vs.  Tonghua Grape Wine

DO Home Collection

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tonghua Grape Wine

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with DO Home and Tonghua Grape

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

The idea behind DO Home Collection and Tonghua Grape Wine 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .