Correlation Between Digital China and Lungyen Life

Can any of the company-specific risk be diversified away by investing in both Digital China and Lungyen Life 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 Digital China and Lungyen Life into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Digital China Holdings and Lungyen Life Service, you can compare the effects of market volatilities on Digital China and Lungyen Life 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 Digital China with a short position of Lungyen Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital China and Lungyen Life.

Diversification Opportunities for Digital China and Lungyen Life

0.85

Correlation Coefficient

Digital China  Lungyen Life

Very poor diversification

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

Pair Corralation between Digital China and Lungyen Life

Assuming the 90 days trading horizon Digital China is expected to generate 1.04 times less return on investment than Lungyen Life. In addition to that, Digital China is 1.27 times more volatile than Lungyen Life Service. It trades about 0.13 of its total potential returns per unit of risk. Lungyen Life Service is currently generating about 0.17 per unit of volatility. If you would invest  5,020  in Lungyen Life Service on September 22, 2024 and sell it today you would earn a total of  410.00  from holding Lungyen Life Service or generate 8.17% return on investment over 90 days.

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

Digital China Holdings  vs.  Lungyen Life Service

Digital China Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Digital China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lungyen Life Service

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lungyen Life Service are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lungyen Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital China and Lungyen Life

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

The idea behind Digital China Holdings and Lungyen Life Service 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .