Correlation Between Shuhua Sports and Digital China

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

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

Diversification Opportunities for Shuhua Sports and Digital China

0.77

Correlation Coefficient

Shuhua Sports  Digital China

Poor diversification

The 3 months correlation between Shuhua and Digital is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Shuhua Sports 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 Shuhua Sports 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 Shuhua Sports 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 Shuhua Sports i.e., Shuhua Sports and Digital China go up and down completely randomly.

Pair Corralation between Shuhua Sports and Digital China

Assuming the 90 days trading horizon Shuhua Sports Co is expected to under-perform the Digital China. But the stock apears to be less risky and, when comparing its historical volatility, Shuhua Sports Co is 1.68 times less risky than Digital China. The stock trades about 0.0 of its potential returns per unit of risk. The Digital China Information is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,133  in Digital China Information on September 28, 2024 and sell it today you would earn a total of  58.00  from holding Digital China Information or generate 5.12% return on investment over 90 days.

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

Shuhua Sports Co  vs.  Digital China Information

Shuhua Sports

Risk-Adjusted Performance

0 of 100

Insignificant

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

Digital China Information

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shuhua Sports and Digital China

The main advantage of trading using opposite Shuhua Sports and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shuhua Sports 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 Shuhua Sports 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.