Correlation Between Digital China and Hotai Finance

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

Diversification Opportunities for Digital China and Hotai Finance

-0.74

Correlation Coefficient

Digital China  Hotai Finance

Pay attention - limited upside

The 3 months correlation between Digital and Hotai is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Holdings and Hotai Finance Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotai Finance Corp 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 Hotai Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotai Finance Corp has no effect on the direction of Digital China i.e., Digital China and Hotai Finance go up and down completely randomly.

Pair Corralation between Digital China and Hotai Finance

Assuming the 90 days trading horizon Digital China is expected to generate 144.61 times less return on investment than Hotai Finance. But when comparing it to its historical volatility, Digital China Holdings is 4.69 times less risky than Hotai Finance. It trades about 0.0 of its potential returns per unit of risk. Hotai Finance Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,036  in Hotai Finance Corp on September 29, 2024 and sell it today you would lose (266.00) from holding Hotai Finance Corp or give up 3.31% 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.  Hotai Finance Corp

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.

Hotai Finance Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotai Finance Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Digital China and Hotai Finance

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

The idea behind Digital China Holdings and Hotai Finance Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.