Correlation Between Dongguan Tarry and Hubeiyichang Transportation

Can any of the company-specific risk be diversified away by investing in both Dongguan Tarry and Hubeiyichang Transportation 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 Hubeiyichang Transportation 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 Hubeiyichang Transportation Group, you can compare the effects of market volatilities on Dongguan Tarry and Hubeiyichang Transportation 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 Hubeiyichang Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongguan Tarry and Hubeiyichang Transportation.

Diversification Opportunities for Dongguan Tarry and Hubeiyichang Transportation

0.31

Correlation Coefficient

Dongguan Tarry  Hubeiyichang Transportation

Weak diversification

The 3 months correlation between Dongguan and Hubeiyichang is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Dongguan Tarry Electronics and Hubeiyichang Transportation Gr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubeiyichang Transportation 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 Hubeiyichang Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubeiyichang Transportation has no effect on the direction of Dongguan Tarry i.e., Dongguan Tarry and Hubeiyichang Transportation go up and down completely randomly.

Pair Corralation between Dongguan Tarry and Hubeiyichang Transportation

Assuming the 90 days trading horizon Dongguan Tarry Electronics is expected to generate 1.93 times more return on investment than Hubeiyichang Transportation. However, Dongguan Tarry is 1.93 times more volatile than Hubeiyichang Transportation Group. It trades about 0.03 of its potential returns per unit of risk. Hubeiyichang Transportation Group is currently generating about 0.0 per unit of risk. If you would invest  5,248  in Dongguan Tarry Electronics on October 11, 2024 and sell it today you would earn a total of  1,216  from holding Dongguan Tarry Electronics or generate 23.17% return on investment over 90 days.

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

Dongguan Tarry Electronics  vs.  Hubeiyichang Transportation Gr

Dongguan Tarry Elect

Risk-Adjusted Performance

6 of 100

Insignificant

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.

Hubeiyichang Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dongguan Tarry and Hubeiyichang Transportation

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

The idea behind Dongguan Tarry Electronics and Hubeiyichang Transportation Group 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.