Correlation Between Zhende Medical and Digital China

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

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

Diversification Opportunities for Zhende Medical and Digital China

0.86

Correlation Coefficient

Zhende Medical  Digital China

Very poor diversification

The 3 months correlation between Zhende and Digital is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Zhende Medical Co 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 Zhende Medical 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 Zhende Medical Co 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 Zhende Medical i.e., Zhende Medical and Digital China go up and down completely randomly.

Pair Corralation between Zhende Medical and Digital China

Assuming the 90 days trading horizon Zhende Medical is expected to generate 54.9 times less return on investment than Digital China. But when comparing it to its historical volatility, Zhende Medical Co is 3.54 times less risky than Digital China. It trades about 0.01 of its potential returns per unit of risk. Digital China Information is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,188  in Digital China Information on September 24, 2024 and sell it today you would earn a total of  130.00  from holding Digital China Information or generate 10.94% return on investment over 90 days.

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

Zhende Medical Co  vs.  Digital China Information

Zhende Medical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhende Medical Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhende Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Digital China Information

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhende Medical and Digital China

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