Correlation Between Dr Peng and Digital China

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

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

Diversification Opportunities for Dr Peng and Digital China

0.4

Correlation Coefficient

Dr Peng  Digital China

Very weak diversification

The 3 months correlation between 600804 and Digital is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dr Peng Telecom 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 Dr Peng 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 Dr Peng Telecom 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 Dr Peng i.e., Dr Peng and Digital China go up and down completely randomly.

Pair Corralation between Dr Peng and Digital China

Assuming the 90 days trading horizon Dr Peng Telecom is expected to under-perform the Digital China. In addition to that, Dr Peng is 1.19 times more volatile than Digital China Information. It trades about -0.06 of its total potential returns per unit of risk. Digital China Information is currently generating about 0.01 per unit of volatility. If you would invest  1,094  in Digital China Information on October 9, 2024 and sell it today you would lose (68.00) from holding Digital China Information or give up 6.22% of portfolio value over 90 days.

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

Dr Peng Telecom  vs.  Digital China Information

Dr Peng Telecom

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dr Peng Telecom are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dr Peng 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 Dr Peng and Digital China

The main advantage of trading using opposite Dr Peng and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dr Peng 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 Dr Peng Telecom 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.