Correlation Between New China and Dongnan Electronics

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

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

Diversification Opportunities for New China and Dongnan Electronics

0.43

Correlation Coefficient

New China  Dongnan Electronics

Very weak diversification

The 3 months correlation between New and Dongnan is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and Dongnan Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongnan Electronics and New China 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 New China Life are associated (or correlated) with Dongnan Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongnan Electronics has no effect on the direction of New China i.e., New China and Dongnan Electronics go up and down completely randomly.

Pair Corralation between New China and Dongnan Electronics

Assuming the 90 days trading horizon New China Life is expected to generate 0.7 times more return on investment than Dongnan Electronics. However, New China Life is 1.43 times less risky than Dongnan Electronics. It trades about -0.04 of its potential returns per unit of risk. Dongnan Electronics Co is currently generating about -0.06 per unit of risk. If you would invest  5,106  in New China Life on October 8, 2024 and sell it today you would lose (488.00) from holding New China Life or give up 9.56% of portfolio value over 90 days.

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

New China Life  vs.  Dongnan Electronics Co

New China Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New China Life 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.

Dongnan Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongnan Electronics Co 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 New China and Dongnan Electronics

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

The idea behind New China Life and Dongnan Electronics Co 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.