Correlation Between Da Cin and Te Chang

Can any of the company-specific risk be diversified away by investing in both Da Cin and Te Chang 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 Da Cin and Te Chang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Da Cin Construction Co and Te Chang Construction, you can compare the effects of market volatilities on Da Cin and Te Chang 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 Da Cin with a short position of Te Chang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Da Cin and Te Chang.

Diversification Opportunities for Da Cin and Te Chang

0.18

Correlation Coefficient

Da Cin  Te Chang

Average diversification

The 3 months correlation between 2535 and 5511 is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Da Cin Construction Co and Te Chang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Te Chang Construction and Da Cin 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 Da Cin Construction Co are associated (or correlated) with Te Chang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Te Chang Construction has no effect on the direction of Da Cin i.e., Da Cin and Te Chang go up and down completely randomly.

Pair Corralation between Da Cin and Te Chang

Assuming the 90 days trading horizon Da Cin Construction Co is expected to generate 2.21 times more return on investment than Te Chang. However, Da Cin is 2.21 times more volatile than Te Chang Construction. It trades about 0.25 of its potential returns per unit of risk. Te Chang Construction is currently generating about 0.07 per unit of risk. If you would invest  4,910  in Da Cin Construction Co on September 20, 2024 and sell it today you would earn a total of  370.00  from holding Da Cin Construction Co or generate 7.54% return on investment over 90 days.

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

Da Cin Construction Co  vs.  Te Chang Construction

Da Cin Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Da Cin Construction Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Da Cin is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Te Chang Construction

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Te Chang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Da Cin and Te Chang

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

The idea behind Da Cin Construction Co and Te Chang Construction 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.