Correlation Between Northern United and Dongnan Electronics

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

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

Diversification Opportunities for Northern United and Dongnan Electronics

0.73

Correlation Coefficient

Northern United  Dongnan Electronics

Poor diversification

The 3 months correlation between Northern and Dongnan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Northern United Publishing and Dongnan Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongnan Electronics and Northern United 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 Northern United Publishing 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 Northern United i.e., Northern United and Dongnan Electronics go up and down completely randomly.

Pair Corralation between Northern United and Dongnan Electronics

Assuming the 90 days trading horizon Northern United is expected to generate 1.86 times less return on investment than Dongnan Electronics. But when comparing it to its historical volatility, Northern United Publishing is 1.15 times less risky than Dongnan Electronics. It trades about 0.01 of its potential returns per unit of risk. Dongnan Electronics Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,298  in Dongnan Electronics Co on October 25, 2024 and sell it today you would lose (9.00) from holding Dongnan Electronics Co or give up 0.39% of portfolio value over 90 days.

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

Northern United Publishing  vs.  Dongnan Electronics Co

Northern United Publ

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Northern United and Dongnan Electronics

The main advantage of trading using opposite Northern United and Dongnan Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern United 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 Northern United Publishing 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.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.