Correlation Between Dongguan Tarry and Shenzhen Noposion

Can any of the company-specific risk be diversified away by investing in both Dongguan Tarry and Shenzhen Noposion 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 Dongguan Tarry and Shenzhen Noposion into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongguan Tarry Electronics and Shenzhen Noposion Agrochemicals, you can compare the effects of market volatilities on Dongguan Tarry and Shenzhen Noposion 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 Dongguan Tarry with a short position of Shenzhen Noposion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongguan Tarry and Shenzhen Noposion.

Diversification Opportunities for Dongguan Tarry and Shenzhen Noposion

0.87

Correlation Coefficient

Dongguan Tarry  Shenzhen Noposion

Very poor diversification

The 3 months correlation between Dongguan and Shenzhen is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dongguan Tarry Electronics and Shenzhen Noposion Agrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Noposion and Dongguan Tarry 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 Dongguan Tarry Electronics are associated (or correlated) with Shenzhen Noposion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Noposion has no effect on the direction of Dongguan Tarry i.e., Dongguan Tarry and Shenzhen Noposion go up and down completely randomly.

Pair Corralation between Dongguan Tarry and Shenzhen Noposion

Assuming the 90 days trading horizon Dongguan Tarry Electronics is expected to generate 1.2 times more return on investment than Shenzhen Noposion. However, Dongguan Tarry is 1.2 times more volatile than Shenzhen Noposion Agrochemicals. It trades about 0.08 of its potential returns per unit of risk. Shenzhen Noposion Agrochemicals is currently generating about 0.06 per unit of risk. If you would invest  6,230  in Dongguan Tarry Electronics on October 25, 2024 and sell it today you would earn a total of  892.00  from holding Dongguan Tarry Electronics or generate 14.32% return on investment over 90 days.

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

Dongguan Tarry Electronics  vs.  Shenzhen Noposion Agrochemical

Dongguan Tarry Elect

Risk-Adjusted Performance

6 of 100

Modest

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

Shenzhen Noposion

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Noposion Agrochemicals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Noposion may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dongguan Tarry and Shenzhen Noposion

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

The idea behind Dongguan Tarry Electronics and Shenzhen Noposion Agrochemicals 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.