Correlation Between Dazhong Transportation and Tongling Nonferrous

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

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

Diversification Opportunities for Dazhong Transportation and Tongling Nonferrous

0.43

Correlation Coefficient

Dazhong Transportation  Tongling Nonferrous

Very weak diversification

The 3 months correlation between Dazhong and Tongling is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Tongling Nonferrous Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongling Nonferrous and Dazhong Transportation 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 Dazhong Transportation Group are associated (or correlated) with Tongling Nonferrous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongling Nonferrous has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Tongling Nonferrous go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Tongling Nonferrous

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to generate 1.5 times more return on investment than Tongling Nonferrous. However, Dazhong Transportation is 1.5 times more volatile than Tongling Nonferrous Metals. It trades about -0.02 of its potential returns per unit of risk. Tongling Nonferrous Metals is currently generating about -0.06 per unit of risk. If you would invest  23.00  in Dazhong Transportation Group on October 15, 2024 and sell it today you would lose (1.00) from holding Dazhong Transportation Group or give up 4.35% of portfolio value over 90 days.

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

Dazhong Transportation Group  vs.  Tongling Nonferrous Metals

Dazhong Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tongling Nonferrous

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dazhong Transportation and Tongling Nonferrous

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

The idea behind Dazhong Transportation Group and Tongling Nonferrous Metals 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.