Correlation Between Digital China and Taiwan Hopax

Can any of the company-specific risk be diversified away by investing in both Digital China and Taiwan Hopax 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 Taiwan Hopax 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 Taiwan Hopax Chemsistry, you can compare the effects of market volatilities on Digital China and Taiwan Hopax 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 Taiwan Hopax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital China and Taiwan Hopax.

Diversification Opportunities for Digital China and Taiwan Hopax

-0.62

Correlation Coefficient

Digital China  Taiwan Hopax

Excellent diversification

The 3 months correlation between Digital and Taiwan is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Holdings and Taiwan Hopax Chemsistry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Hopax Chemsistry 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 Taiwan Hopax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Hopax Chemsistry has no effect on the direction of Digital China i.e., Digital China and Taiwan Hopax go up and down completely randomly.

Pair Corralation between Digital China and Taiwan Hopax

Assuming the 90 days trading horizon Digital China Holdings is expected to generate 1.38 times more return on investment than Taiwan Hopax. However, Digital China is 1.38 times more volatile than Taiwan Hopax Chemsistry. It trades about 0.0 of its potential returns per unit of risk. Taiwan Hopax Chemsistry is currently generating about -0.01 per unit of risk. If you would invest  778.00  in Digital China Holdings on October 1, 2024 and sell it today you would lose (71.00) from holding Digital China Holdings or give up 9.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Digital China Holdings  vs.  Taiwan Hopax Chemsistry

Digital China Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Hopax Chemsistry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Hopax Chemsistry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Hopax is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Digital China and Taiwan Hopax

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

The idea behind Digital China Holdings and Taiwan Hopax Chemsistry 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.