Correlation Between Dirui Industrial and Senci Electric

Can any of the company-specific risk be diversified away by investing in both Dirui Industrial and Senci Electric 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 Dirui Industrial and Senci Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dirui Industrial Co and Senci Electric Machinery, you can compare the effects of market volatilities on Dirui Industrial and Senci Electric 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 Dirui Industrial with a short position of Senci Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dirui Industrial and Senci Electric.

Diversification Opportunities for Dirui Industrial and Senci Electric

0.79

Correlation Coefficient

Dirui Industrial  Senci Electric

Poor diversification

The 3 months correlation between Dirui and Senci is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dirui Industrial Co and Senci Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Senci Electric Machinery and Dirui Industrial 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 Dirui Industrial Co are associated (or correlated) with Senci Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Senci Electric Machinery has no effect on the direction of Dirui Industrial i.e., Dirui Industrial and Senci Electric go up and down completely randomly.

Pair Corralation between Dirui Industrial and Senci Electric

Assuming the 90 days trading horizon Dirui Industrial is expected to generate 1.22 times less return on investment than Senci Electric. In addition to that, Dirui Industrial is 1.43 times more volatile than Senci Electric Machinery. It trades about 0.09 of its total potential returns per unit of risk. Senci Electric Machinery is currently generating about 0.15 per unit of volatility. If you would invest  1,240  in Senci Electric Machinery on September 5, 2024 and sell it today you would earn a total of  337.00  from holding Senci Electric Machinery or generate 27.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Dirui Industrial Co  vs.  Senci Electric Machinery

Dirui Industrial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dirui Industrial Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dirui Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Senci Electric Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Senci Electric Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Senci Electric sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dirui Industrial and Senci Electric

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

The idea behind Dirui Industrial Co and Senci Electric Machinery 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.