Correlation Between NBTM New and Digital China

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

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

Diversification Opportunities for NBTM New and Digital China

0.23

Correlation Coefficient

NBTM New  Digital China

Modest diversification

The 3 months correlation between NBTM and Digital is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NBTM New Materials 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 NBTM New 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 NBTM New Materials 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 NBTM New i.e., NBTM New and Digital China go up and down completely randomly.

Pair Corralation between NBTM New and Digital China

Assuming the 90 days trading horizon NBTM New Materials is expected to under-perform the Digital China. But the stock apears to be less risky and, when comparing its historical volatility, NBTM New Materials is 1.26 times less risky than Digital China. The stock trades about -0.04 of its potential returns per unit of risk. The Digital China Information is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,097  in Digital China Information on October 10, 2024 and sell it today you would lose (71.00) from holding Digital China Information or give up 6.47% of portfolio value over 90 days.

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

NBTM New Materials  vs.  Digital China Information

NBTM New Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NBTM New Materials 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.

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 NBTM New and Digital China

The main advantage of trading using opposite NBTM New and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NBTM New 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 NBTM New Materials 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.