Correlation Between Dazhong Transportation and Suzhou Novoprotein

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

Diversification Opportunities for Dazhong Transportation and Suzhou Novoprotein

0.85

Correlation Coefficient

Dazhong Transportation  Suzhou Novoprotein

Very poor diversification

The 3 months correlation between Dazhong and Suzhou is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Suzhou Novoprotein Scientific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Novoprotein 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 Suzhou Novoprotein. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Novoprotein has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Suzhou Novoprotein go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Suzhou Novoprotein

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to under-perform the Suzhou Novoprotein. But the stock apears to be less risky and, when comparing its historical volatility, Dazhong Transportation Group is 1.2 times less risky than Suzhou Novoprotein. The stock trades about -0.39 of its potential returns per unit of risk. The Suzhou Novoprotein Scientific is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,462  in Suzhou Novoprotein Scientific on September 25, 2024 and sell it today you would lose (75.00) from holding Suzhou Novoprotein Scientific or give up 2.17% of portfolio value over 90 days.

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

Dazhong Transportation Group  vs.  Suzhou Novoprotein Scientific

Dazhong Transportation

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dazhong Transportation Group are ranked lower than 9 (%) 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.

Suzhou Novoprotein

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Novoprotein Scientific are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Novoprotein sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dazhong Transportation and Suzhou Novoprotein

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

The idea behind Dazhong Transportation Group and Suzhou Novoprotein Scientific 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.