Correlation Between New China and Dosilicon

Can any of the company-specific risk be diversified away by investing in both New China and Dosilicon 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 Dosilicon 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 Dosilicon Co, you can compare the effects of market volatilities on New China and Dosilicon 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 Dosilicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of New China and Dosilicon.

Diversification Opportunities for New China and Dosilicon

0.58

Correlation Coefficient

New China  Dosilicon

Very weak diversification

The 3 months correlation between New and Dosilicon is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding New China Life and Dosilicon Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dosilicon 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 Dosilicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dosilicon has no effect on the direction of New China i.e., New China and Dosilicon go up and down completely randomly.

Pair Corralation between New China and Dosilicon

Assuming the 90 days trading horizon New China is expected to generate 8.52 times less return on investment than Dosilicon. But when comparing it to its historical volatility, New China Life is 1.34 times less risky than Dosilicon. It trades about 0.01 of its potential returns per unit of risk. Dosilicon Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,650  in Dosilicon Co on December 26, 2024 and sell it today you would earn a total of  319.00  from holding Dosilicon Co or generate 12.04% return on investment over 90 days.

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

New China Life  vs.  Dosilicon Co

New China Life

Risk-Adjusted Performance

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 somewhat strong basic indicators, New China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dosilicon

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dosilicon Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dosilicon sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New China and Dosilicon

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

The idea behind New China Life and Dosilicon 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.