Correlation Between Dazhong Transportation and Qingdao Citymedia

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

Diversification Opportunities for Dazhong Transportation and Qingdao Citymedia

0.78

Correlation Coefficient

Dazhong Transportation  Qingdao Citymedia

Poor diversification

The 3 months correlation between Dazhong and Qingdao is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Qingdao Citymedia Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qingdao Citymedia 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 Qingdao Citymedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qingdao Citymedia has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Qingdao Citymedia go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Qingdao Citymedia

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to generate 1.03 times more return on investment than Qingdao Citymedia. However, Dazhong Transportation is 1.03 times more volatile than Qingdao Citymedia Co. It trades about 0.06 of its potential returns per unit of risk. Qingdao Citymedia Co is currently generating about 0.02 per unit of risk. If you would invest  18.00  in Dazhong Transportation Group on September 19, 2024 and sell it today you would earn a total of  7.00  from holding Dazhong Transportation Group or generate 38.89% return on investment over 90 days.

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

Dazhong Transportation Group  vs.  Qingdao Citymedia Co

Dazhong Transportation

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dazhong Transportation Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dazhong Transportation sustained solid returns over the last few months and may actually be approaching a breakup point.

Qingdao Citymedia

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Qingdao Citymedia Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Qingdao Citymedia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dazhong Transportation and Qingdao Citymedia

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

The idea behind Dazhong Transportation Group and Qingdao Citymedia 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.