Correlation Between New Hope and Dazhong Transportation

Can any of the company-specific risk be diversified away by investing in both New Hope and Dazhong Transportation 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 New Hope and Dazhong Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New Hope Dairy and Dazhong Transportation Group, you can compare the effects of market volatilities on New Hope and Dazhong Transportation 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 New Hope with a short position of Dazhong Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Hope and Dazhong Transportation.

Diversification Opportunities for New Hope and Dazhong Transportation

-0.15

Correlation Coefficient

New Hope  Dazhong Transportation

Good diversification

The 3 months correlation between New and Dazhong is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding New Hope Dairy and Dazhong Transportation Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dazhong Transportation and New Hope 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 New Hope Dairy are associated (or correlated) with Dazhong Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dazhong Transportation has no effect on the direction of New Hope i.e., New Hope and Dazhong Transportation go up and down completely randomly.

Pair Corralation between New Hope and Dazhong Transportation

Assuming the 90 days trading horizon New Hope Dairy is expected to generate 0.97 times more return on investment than Dazhong Transportation. However, New Hope Dairy is 1.03 times less risky than Dazhong Transportation. It trades about 0.03 of its potential returns per unit of risk. Dazhong Transportation Group is currently generating about 0.0 per unit of risk. If you would invest  1,236  in New Hope Dairy on October 11, 2024 and sell it today you would earn a total of  309.00  from holding New Hope Dairy or generate 25.0% return on investment over 90 days.

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

New Hope Dairy  vs.  Dazhong Transportation Group

New Hope Dairy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Hope Dairy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, New Hope sustained solid returns over the last few months and may actually be approaching a breakup point.

Dazhong Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with New Hope and Dazhong Transportation

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

The idea behind New Hope Dairy and Dazhong Transportation 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.