Correlation Between Dazhong Transportation and Huaxia Eye

Can any of the company-specific risk be diversified away by investing in both Dazhong Transportation and Huaxia Eye 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 Huaxia Eye 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 Huaxia Eye Hospital, you can compare the effects of market volatilities on Dazhong Transportation and Huaxia Eye 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 Huaxia Eye. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dazhong Transportation and Huaxia Eye.

Diversification Opportunities for Dazhong Transportation and Huaxia Eye

0.44

Correlation Coefficient

Dazhong Transportation  Huaxia Eye

Very weak diversification

The 3 months correlation between Dazhong and Huaxia is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Huaxia Eye Hospital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaxia Eye Hospital 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 Huaxia Eye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaxia Eye Hospital has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Huaxia Eye go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Huaxia Eye

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to generate 1.29 times more return on investment than Huaxia Eye. However, Dazhong Transportation is 1.29 times more volatile than Huaxia Eye Hospital. It trades about -0.36 of its potential returns per unit of risk. Huaxia Eye Hospital is currently generating about -0.56 per unit of risk. If you would invest  26.00  in Dazhong Transportation Group on October 8, 2024 and sell it today you would lose (4.00) from holding Dazhong Transportation Group or give up 15.38% 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.  Huaxia Eye Hospital

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.

Huaxia Eye Hospital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaxia Eye Hospital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dazhong Transportation and Huaxia Eye

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

The idea behind Dazhong Transportation Group and Huaxia Eye Hospital 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.