Correlation Between Dawushan Farm and Kunyue Development

Can any of the company-specific risk be diversified away by investing in both Dawushan Farm and Kunyue Development 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 Dawushan Farm and Kunyue Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dawushan Farm Tech and Kunyue Development Co, you can compare the effects of market volatilities on Dawushan Farm and Kunyue Development 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 Dawushan Farm with a short position of Kunyue Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dawushan Farm and Kunyue Development.

Diversification Opportunities for Dawushan Farm and Kunyue Development

0.5

Correlation Coefficient

Dawushan Farm  Kunyue Development

Very weak diversification

The 3 months correlation between Dawushan and Kunyue is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dawushan Farm Tech and Kunyue Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunyue Development and Dawushan Farm 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 Dawushan Farm Tech are associated (or correlated) with Kunyue Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunyue Development has no effect on the direction of Dawushan Farm i.e., Dawushan Farm and Kunyue Development go up and down completely randomly.

Pair Corralation between Dawushan Farm and Kunyue Development

Assuming the 90 days trading horizon Dawushan Farm Tech is expected to under-perform the Kunyue Development. But the stock apears to be less risky and, when comparing its historical volatility, Dawushan Farm Tech is 1.23 times less risky than Kunyue Development. The stock trades about -0.05 of its potential returns per unit of risk. The Kunyue Development Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,305  in Kunyue Development Co on October 6, 2024 and sell it today you would earn a total of  1,980  from holding Kunyue Development Co or generate 85.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.67%
Values	Daily Returns

Dawushan Farm Tech  vs.  Kunyue Development Co

Dawushan Farm Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dawushan Farm Tech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dawushan Farm is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kunyue Development

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kunyue Development Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kunyue Development may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dawushan Farm and Kunyue Development

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

The idea behind Dawushan Farm Tech and Kunyue Development Co 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.