Correlation Between Northern United and Dazhong Transportation

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

Diversification Opportunities for Northern United and Dazhong Transportation

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Northern and Dazhong is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Northern United Publishing and Dazhong Transportation Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dazhong Transportation 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 Dazhong Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dazhong Transportation has no effect on the direction of Northern United i.e., Northern United and Dazhong Transportation go up and down completely randomly.

Pair Corralation between Northern United and Dazhong Transportation

Assuming the 90 days trading horizon Northern United Publishing is expected to generate 1.2 times more return on investment than Dazhong Transportation. However, Northern United is 1.2 times more volatile than Dazhong Transportation Group. It trades about -0.01 of its potential returns per unit of risk. Dazhong Transportation Group is currently generating about -0.04 per unit of risk. If you would invest  643.00  in Northern United Publishing on October 25, 2024 and sell it today you would lose (25.00) from holding Northern United Publishing or give up 3.89% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Northern United Publishing  vs.  Dazhong Transportation Group

 Performance 
       Timeline  
Northern United Publ 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Dazhong Transportation 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Dazhong Transportation Group 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.

Northern United and Dazhong Transportation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Northern United and Dazhong Transportation

The main advantage of trading using opposite Northern United and Dazhong Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern United position performs unexpectedly, Dazhong Transportation 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 Dazhong Transportation will offset losses from the drop in Dazhong Transportation's long position.
The idea behind Northern United Publishing and Dazhong Transportation Group 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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