Correlation Between Dongnan Electronics and Qumei Furniture

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

By analyzing existing cross correlation between Dongnan Electronics Co and Qumei Furniture Group, you can compare the effects of market volatilities on Dongnan Electronics and Qumei Furniture 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 Dongnan Electronics with a short position of Qumei Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongnan Electronics and Qumei Furniture.

Diversification Opportunities for Dongnan Electronics and Qumei Furniture

0.8

Correlation Coefficient

Dongnan Electronics  Qumei Furniture

Very poor diversification

The 3 months correlation between Dongnan and Qumei is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dongnan Electronics Co and Qumei Furniture Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qumei Furniture Group and Dongnan Electronics 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 Dongnan Electronics Co are associated (or correlated) with Qumei Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qumei Furniture Group has no effect on the direction of Dongnan Electronics i.e., Dongnan Electronics and Qumei Furniture go up and down completely randomly.

Pair Corralation between Dongnan Electronics and Qumei Furniture

Assuming the 90 days trading horizon Dongnan Electronics Co is expected to generate 0.73 times more return on investment than Qumei Furniture. However, Dongnan Electronics Co is 1.36 times less risky than Qumei Furniture. It trades about -0.02 of its potential returns per unit of risk. Qumei Furniture Group is currently generating about -0.05 per unit of risk. If you would invest  2,506  in Dongnan Electronics Co on December 2, 2024 and sell it today you would lose (110.00) from holding Dongnan Electronics Co or give up 4.39% of portfolio value over 90 days.

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

Dongnan Electronics Co  vs.  Qumei Furniture Group

Dongnan Electronics

Risk-Adjusted Performance

Very Weak

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

Qumei Furniture Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Qumei Furniture Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Dongnan Electronics and Qumei Furniture

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

The idea behind Dongnan Electronics Co and Qumei Furniture 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.