Correlation Between Lotus Health and Digital China

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

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

Diversification Opportunities for Lotus Health and Digital China

0.32

Correlation Coefficient

Lotus Health  Digital China

Weak diversification

The 3 months correlation between Lotus and Digital is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lotus Health Group 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 Lotus Health 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 Lotus Health Group 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 Lotus Health i.e., Lotus Health and Digital China go up and down completely randomly.

Pair Corralation between Lotus Health and Digital China

Assuming the 90 days trading horizon Lotus Health Group is expected to generate 1.04 times more return on investment than Digital China. However, Lotus Health is 1.04 times more volatile than Digital China Information. It trades about 0.09 of its potential returns per unit of risk. Digital China Information is currently generating about -0.01 per unit of risk. If you would invest  409.00  in Lotus Health Group on October 12, 2024 and sell it today you would earn a total of  84.00  from holding Lotus Health Group or generate 20.54% return on investment over 90 days.

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

Lotus Health Group  vs.  Digital China Information

Lotus Health Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lotus Health Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lotus Health sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Lotus Health and Digital China

The main advantage of trading using opposite Lotus Health and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotus Health 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 Lotus Health Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.