Correlation Between Dazhong Transportation and Road Environment

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

Diversification Opportunities for Dazhong Transportation and Road Environment

0.78

Correlation Coefficient

Dazhong Transportation  Road Environment

Poor diversification

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

Pair Corralation between Dazhong Transportation and Road Environment

Assuming the 90 days trading horizon Dazhong Transportation is expected to generate 1.31 times less return on investment than Road Environment. But when comparing it to its historical volatility, Dazhong Transportation Group is 1.28 times less risky than Road Environment. It trades about 0.01 of its potential returns per unit of risk. Road Environment Technology is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,398  in Road Environment Technology on October 1, 2024 and sell it today you would lose (10.00) from holding Road Environment Technology or give up 0.72% of portfolio value over 90 days.

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

Dazhong Transportation Group  vs.  Road Environment Technology

Dazhong Transportation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dazhong Transportation Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Road Environment Tec

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Road Environment Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Road Environment 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 Road Environment

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

The idea behind Dazhong Transportation Group and Road Environment Technology 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.