Correlation Between Threes Company and Dazhong Transportation

Can any of the company-specific risk be diversified away by investing in both Threes Company 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 Threes Company and Dazhong Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Threes Company Media and Dazhong Transportation Group, you can compare the effects of market volatilities on Threes Company 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 Threes Company with a short position of Dazhong Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Threes Company and Dazhong Transportation.

Diversification Opportunities for Threes Company and Dazhong Transportation

0.78

Correlation Coefficient

Threes Company  Dazhong Transportation

Poor diversification

The 3 months correlation between Threes and Dazhong is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Threes Company Media and Dazhong Transportation Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dazhong Transportation and Threes Company 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 Threes Company Media 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 Threes Company i.e., Threes Company and Dazhong Transportation go up and down completely randomly.

Pair Corralation between Threes Company and Dazhong Transportation

Assuming the 90 days trading horizon Threes Company Media is expected to under-perform the Dazhong Transportation. In addition to that, Threes Company is 1.33 times more volatile than Dazhong Transportation Group. It trades about -0.03 of its total potential returns per unit of risk. Dazhong Transportation Group is currently generating about 0.06 per unit of volatility. If you would invest  18.00  in Dazhong Transportation Group on September 19, 2024 and sell it today you would earn a total of  7.00  from holding Dazhong Transportation Group or generate 38.89% return on investment over 90 days.

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

Threes Company Media  vs.  Dazhong Transportation Group

Threes Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Threes Company Media are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Threes Company sustained solid returns over the last few months and may actually be approaching a breakup point.

Dazhong Transportation

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dazhong Transportation Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dazhong Transportation sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Threes Company and Dazhong Transportation

The main advantage of trading using opposite Threes Company and Dazhong Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Threes Company 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 Threes Company Media 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.