Correlation Between CSSC Offshore and Digital China

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

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

Diversification Opportunities for CSSC Offshore and Digital China

0.71

Correlation Coefficient

CSSC Offshore  Digital China

Poor diversification

The 3 months correlation between CSSC and Digital is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding CSSC Offshore Marine 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 CSSC Offshore 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 CSSC Offshore Marine 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 CSSC Offshore i.e., CSSC Offshore and Digital China go up and down completely randomly.

Pair Corralation between CSSC Offshore and Digital China

Assuming the 90 days trading horizon CSSC Offshore Marine is expected to under-perform the Digital China. But the stock apears to be less risky and, when comparing its historical volatility, CSSC Offshore Marine is 2.45 times less risky than Digital China. The stock trades about -0.1 of its potential returns per unit of risk. The Digital China Information is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,186  in Digital China Information on October 25, 2024 and sell it today you would lose (120.00) from holding Digital China Information or give up 10.12% of portfolio value over 90 days.

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

CSSC Offshore Marine  vs.  Digital China Information

CSSC Offshore Marine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSSC Offshore Marine 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 CSSC Offshore and Digital China

The main advantage of trading using opposite CSSC Offshore and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSSC Offshore 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 CSSC Offshore Marine 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.