Correlation Between Hubei Dinglong and Digital China

Can any of the company-specific risk be diversified away by investing in both Hubei Dinglong and Digital China 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 Hubei Dinglong and Digital China into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hubei Dinglong Chemical and Digital China Information, you can compare the effects of market volatilities on Hubei Dinglong and Digital China 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 Hubei Dinglong with a short position of Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Dinglong and Digital China.

Diversification Opportunities for Hubei Dinglong and Digital China

0.71

Correlation Coefficient

Hubei Dinglong  Digital China

Poor diversification

The 3 months correlation between Hubei and Digital is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Dinglong Chemical and Digital China Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Information and Hubei Dinglong 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 Hubei Dinglong Chemical are associated (or correlated) with Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Information has no effect on the direction of Hubei Dinglong i.e., Hubei Dinglong and Digital China go up and down completely randomly.

Pair Corralation between Hubei Dinglong and Digital China

Assuming the 90 days trading horizon Hubei Dinglong Chemical is expected to generate 0.59 times more return on investment than Digital China. However, Hubei Dinglong Chemical is 1.69 times less risky than Digital China. It trades about 0.04 of its potential returns per unit of risk. Digital China Information is currently generating about 0.02 per unit of risk. If you would invest  2,755  in Hubei Dinglong Chemical on December 2, 2024 and sell it today you would earn a total of  107.00  from holding Hubei Dinglong Chemical or generate 3.88% return on investment over 90 days.

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

Hubei Dinglong Chemical  vs.  Digital China Information

Hubei Dinglong Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hubei Dinglong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Digital China Information

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Digital China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hubei Dinglong and Digital China

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

The idea behind Hubei Dinglong Chemical and Digital China Information 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..