Correlation Between Hua Xia and Digital China

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

By analyzing existing cross correlation between Hua Xia Bank and Digital China Information, you can compare the effects of market volatilities on Hua Xia and Digital China 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 Hua Xia with a short position of Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Xia and Digital China.

Diversification Opportunities for Hua Xia and Digital China

0.34

Correlation Coefficient

Hua Xia  Digital China

Weak diversification

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

Pair Corralation between Hua Xia and Digital China

Assuming the 90 days trading horizon Hua Xia Bank is expected to generate 0.21 times more return on investment than Digital China. However, Hua Xia Bank is 4.82 times less risky than Digital China. It trades about 0.22 of its potential returns per unit of risk. Digital China Information is currently generating about -0.06 per unit of risk. If you would invest  766.00  in Hua Xia Bank on October 4, 2024 and sell it today you would earn a total of  35.00  from holding Hua Xia Bank or generate 4.57% return on investment over 90 days.

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

Hua Xia Bank  vs.  Digital China Information

Hua Xia Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Xia Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hua Xia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Digital China Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hua Xia and Digital China

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

The idea behind Hua Xia Bank and Digital China Information 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.