Correlation Between Dongbang Transport and NOVATECH

Can any of the company-specific risk be diversified away by investing in both Dongbang Transport and NOVATECH 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 NOVATECH 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 NOVATECH Co, you can compare the effects of market volatilities on Dongbang Transport and NOVATECH 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 NOVATECH. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongbang Transport and NOVATECH.

Diversification Opportunities for Dongbang Transport and NOVATECH

-0.13

Correlation Coefficient

Dongbang Transport  NOVATECH

Good diversification

The 3 months correlation between Dongbang and NOVATECH is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Dongbang Transport Logistics and NOVATECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVATECH 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 NOVATECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVATECH has no effect on the direction of Dongbang Transport i.e., Dongbang Transport and NOVATECH go up and down completely randomly.

Pair Corralation between Dongbang Transport and NOVATECH

Assuming the 90 days trading horizon Dongbang Transport is expected to generate 2.2 times less return on investment than NOVATECH. But when comparing it to its historical volatility, Dongbang Transport Logistics is 2.51 times less risky than NOVATECH. It trades about 0.38 of its potential returns per unit of risk. NOVATECH Co is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,071,000  in NOVATECH Co on October 10, 2024 and sell it today you would earn a total of  532,000  from holding NOVATECH Co or generate 49.67% 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.  NOVATECH Co

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

NOVATECH

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NOVATECH Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NOVATECH sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongbang Transport and NOVATECH

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

The idea behind Dongbang Transport Logistics and NOVATECH Co 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.