Correlation Between Dongbang Transport and Incar Financial

Can any of the company-specific risk be diversified away by investing in both Dongbang Transport and Incar Financial 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 Dongbang Transport and Incar Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongbang Transport Logistics and Incar Financial Service, you can compare the effects of market volatilities on Dongbang Transport and Incar Financial 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 Dongbang Transport with a short position of Incar Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongbang Transport and Incar Financial.

Diversification Opportunities for Dongbang Transport and Incar Financial

-0.35

Correlation Coefficient

Dongbang Transport  Incar Financial

Very good diversification

The 3 months correlation between Dongbang and Incar is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Dongbang Transport Logistics and Incar Financial Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Incar Financial Service and Dongbang Transport 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 Dongbang Transport Logistics are associated (or correlated) with Incar Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Incar Financial Service has no effect on the direction of Dongbang Transport i.e., Dongbang Transport and Incar Financial go up and down completely randomly.

Pair Corralation between Dongbang Transport and Incar Financial

Assuming the 90 days trading horizon Dongbang Transport is expected to generate 2.08 times less return on investment than Incar Financial. But when comparing it to its historical volatility, Dongbang Transport Logistics is 2.0 times less risky than Incar Financial. It trades about 0.17 of its potential returns per unit of risk. Incar Financial Service is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  551,000  in Incar Financial Service on October 26, 2024 and sell it today you would earn a total of  47,000  from holding Incar Financial Service or generate 8.53% return on investment over 90 days.

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

Dongbang Transport Logistics  vs.  Incar Financial Service

Dongbang Transport

Risk-Adjusted Performance

0 of 100

Very Weak

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

Incar Financial Service

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Incar Financial Service are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Incar Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongbang Transport and Incar Financial

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

The idea behind Dongbang Transport Logistics and Incar Financial Service 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.