Correlation Between Aba Chemicals and Digital China

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

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

Diversification Opportunities for Aba Chemicals and Digital China

0.58

Correlation Coefficient

Aba Chemicals  Digital China

Very weak diversification

The 3 months correlation between Aba and Digital is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Aba Chemicals Corp 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 Aba Chemicals 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 Aba Chemicals Corp 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 Aba Chemicals i.e., Aba Chemicals and Digital China go up and down completely randomly.

Pair Corralation between Aba Chemicals and Digital China

Assuming the 90 days trading horizon Aba Chemicals is expected to generate 2.62 times less return on investment than Digital China. But when comparing it to its historical volatility, Aba Chemicals Corp is 1.66 times less risky than Digital China. It trades about 0.09 of its potential returns per unit of risk. Digital China Information is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,121  in Digital China Information on December 2, 2024 and sell it today you would earn a total of  100.00  from holding Digital China Information or generate 8.92% return on investment over 90 days.

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

Aba Chemicals Corp  vs.  Digital China Information

Aba Chemicals Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aba Chemicals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company 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 Aba Chemicals and Digital China

The main advantage of trading using opposite Aba Chemicals and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aba Chemicals 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 Aba Chemicals Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.