Correlation Between Sino Platinum and Digital China

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

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

Diversification Opportunities for Sino Platinum and Digital China

0.95

Correlation Coefficient

Sino Platinum  Digital China

Almost no diversification

The 3 months correlation between Sino and Digital is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Sino Platinum Metals Co 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 Sino Platinum 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 Sino Platinum Metals Co 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 Sino Platinum i.e., Sino Platinum and Digital China go up and down completely randomly.

Pair Corralation between Sino Platinum and Digital China

Assuming the 90 days trading horizon Sino Platinum is expected to generate 2.36 times less return on investment than Digital China. But when comparing it to its historical volatility, Sino Platinum Metals Co is 1.8 times less risky than Digital China. It trades about 0.14 of its potential returns per unit of risk. Digital China Information is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  836.00  in Digital China Information on September 12, 2024 and sell it today you would earn a total of  404.00  from holding Digital China Information or generate 48.33% return on investment over 90 days.

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

Sino Platinum Metals Co  vs.  Digital China Information

Sino Platinum Metals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sino Platinum Metals Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sino Platinum sustained solid returns over the last few months and may actually be approaching a breakup point.

Digital China Information

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sino Platinum and Digital China

The main advantage of trading using opposite Sino Platinum and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sino Platinum 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 Sino Platinum Metals Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.