Correlation Between DingZing Advanced and Cheng Mei

Can any of the company-specific risk be diversified away by investing in both DingZing Advanced and Cheng Mei 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 DingZing Advanced and Cheng Mei into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DingZing Advanced Materials and Cheng Mei Materials, you can compare the effects of market volatilities on DingZing Advanced and Cheng Mei 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 DingZing Advanced with a short position of Cheng Mei. Check out your portfolio center. Please also check ongoing floating volatility patterns of DingZing Advanced and Cheng Mei.

Diversification Opportunities for DingZing Advanced and Cheng Mei

0.65

Correlation Coefficient

DingZing Advanced  Cheng Mei

Poor diversification

The 3 months correlation between DingZing and Cheng is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding DingZing Advanced Materials and Cheng Mei Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Mei Materials and DingZing Advanced 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 DingZing Advanced Materials are associated (or correlated) with Cheng Mei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Mei Materials has no effect on the direction of DingZing Advanced i.e., DingZing Advanced and Cheng Mei go up and down completely randomly.

Pair Corralation between DingZing Advanced and Cheng Mei

Assuming the 90 days trading horizon DingZing Advanced Materials is expected to generate 2.05 times more return on investment than Cheng Mei. However, DingZing Advanced is 2.05 times more volatile than Cheng Mei Materials. It trades about 0.05 of its potential returns per unit of risk. Cheng Mei Materials is currently generating about 0.09 per unit of risk. If you would invest  14,550  in DingZing Advanced Materials on October 25, 2024 and sell it today you would earn a total of  950.00  from holding DingZing Advanced Materials or generate 6.53% return on investment over 90 days.

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

DingZing Advanced Materials  vs.  Cheng Mei Materials

DingZing Advanced

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DingZing Advanced Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, DingZing Advanced may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cheng Mei Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Mei Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cheng Mei may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with DingZing Advanced and Cheng Mei

The main advantage of trading using opposite DingZing Advanced and Cheng Mei positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DingZing Advanced position performs unexpectedly, Cheng Mei 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 Cheng Mei will offset losses from the drop in Cheng Mei's long position.

The idea behind DingZing Advanced Materials and Cheng Mei Materials 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.