Correlation Between COL Digital and HeNan Splendor

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

By analyzing existing cross correlation between COL Digital Publishing and HeNan Splendor Science, you can compare the effects of market volatilities on COL Digital and HeNan Splendor 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 COL Digital with a short position of HeNan Splendor. Check out your portfolio center. Please also check ongoing floating volatility patterns of COL Digital and HeNan Splendor.

Diversification Opportunities for COL Digital and HeNan Splendor

0.44

Correlation Coefficient

COL Digital  HeNan Splendor

Very weak diversification

The 3 months correlation between COL and HeNan is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding COL Digital Publishing and HeNan Splendor Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeNan Splendor Science and COL Digital 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 COL Digital Publishing are associated (or correlated) with HeNan Splendor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeNan Splendor Science has no effect on the direction of COL Digital i.e., COL Digital and HeNan Splendor go up and down completely randomly.

Pair Corralation between COL Digital and HeNan Splendor

Assuming the 90 days trading horizon COL Digital Publishing is expected to under-perform the HeNan Splendor. But the stock apears to be less risky and, when comparing its historical volatility, COL Digital Publishing is 1.06 times less risky than HeNan Splendor. The stock trades about -0.44 of its potential returns per unit of risk. The HeNan Splendor Science is currently generating about -0.31 of returns per unit of risk over similar time horizon. If you would invest  1,124  in HeNan Splendor Science on October 6, 2024 and sell it today you would lose (236.00) from holding HeNan Splendor Science or give up 21.0% of portfolio value over 90 days.

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

COL Digital Publishing  vs.  HeNan Splendor Science

COL Digital Publishing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COL Digital Publishing 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

HeNan Splendor Science

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with COL Digital and HeNan Splendor

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

The idea behind COL Digital Publishing and HeNan Splendor Science 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.