Correlation Between DR and ACM Research

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

By analyzing existing cross correlation between DR Limited and ACM Research Shanghai, you can compare the effects of market volatilities on DR and ACM Research 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 DR with a short position of ACM Research. Check out your portfolio center. Please also check ongoing floating volatility patterns of DR and ACM Research.

Diversification Opportunities for DR and ACM Research

0.34

Correlation Coefficient

DR  ACM Research

Weak diversification

The 3 months correlation between DR and ACM is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding DR Limited and ACM Research Shanghai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACM Research Shanghai and DR 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 DR Limited are associated (or correlated) with ACM Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACM Research Shanghai has no effect on the direction of DR i.e., DR and ACM Research go up and down completely randomly.

Pair Corralation between DR and ACM Research

Assuming the 90 days trading horizon DR is expected to generate 1.08 times less return on investment than ACM Research. In addition to that, DR is 1.28 times more volatile than ACM Research Shanghai. It trades about 0.14 of its total potential returns per unit of risk. ACM Research Shanghai is currently generating about 0.19 per unit of volatility. If you would invest  9,562  in ACM Research Shanghai on December 11, 2024 and sell it today you would earn a total of  1,398  from holding ACM Research Shanghai or generate 14.62% return on investment over 90 days.

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

DR Limited  vs.  ACM Research Shanghai

DR Limited

Risk-Adjusted Performance

OK

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

ACM Research Shanghai

Risk-Adjusted Performance

Very Weak

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

Pair Trading with DR and ACM Research

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

The idea behind DR Limited and ACM Research Shanghai 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.