Correlation Between Caihong Display and Dongguan Chitwing

Can any of the company-specific risk be diversified away by investing in both Caihong Display and Dongguan Chitwing 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 Caihong Display and Dongguan Chitwing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caihong Display Devices and Dongguan Chitwing Technology, you can compare the effects of market volatilities on Caihong Display and Dongguan Chitwing 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 Caihong Display with a short position of Dongguan Chitwing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caihong Display and Dongguan Chitwing.

Diversification Opportunities for Caihong Display and Dongguan Chitwing

-0.17

Correlation Coefficient

Caihong Display  Dongguan Chitwing

Good diversification

The 3 months correlation between Caihong and Dongguan is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices and Dongguan Chitwing Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongguan Chitwing and Caihong Display 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 Caihong Display Devices are associated (or correlated) with Dongguan Chitwing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongguan Chitwing has no effect on the direction of Caihong Display i.e., Caihong Display and Dongguan Chitwing go up and down completely randomly.

Pair Corralation between Caihong Display and Dongguan Chitwing

Assuming the 90 days trading horizon Caihong Display Devices is expected to generate 0.65 times more return on investment than Dongguan Chitwing. However, Caihong Display Devices is 1.55 times less risky than Dongguan Chitwing. It trades about 0.0 of its potential returns per unit of risk. Dongguan Chitwing Technology is currently generating about -0.1 per unit of risk. If you would invest  802.00  in Caihong Display Devices on October 7, 2024 and sell it today you would lose (17.00) from holding Caihong Display Devices or give up 2.12% of portfolio value over 90 days.

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

Caihong Display Devices  vs.  Dongguan Chitwing Technology

Caihong Display Devices

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongguan Chitwing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongguan Chitwing Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Caihong Display and Dongguan Chitwing

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

The idea behind Caihong Display Devices and Dongguan Chitwing Technology 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.