Correlation Between Digital China and Dadi Early

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

Diversification Opportunities for Digital China and Dadi Early

0.42

Correlation Coefficient

Digital China  Dadi Early

Very weak diversification

The 3 months correlation between Digital and Dadi is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Holdings and Dadi Early Childhood Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dadi Early Childhood 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 Dadi Early. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dadi Early Childhood has no effect on the direction of Digital China i.e., Digital China and Dadi Early go up and down completely randomly.

Pair Corralation between Digital China and Dadi Early

Assuming the 90 days trading horizon Digital China Holdings is expected to under-perform the Dadi Early. But the stock apears to be less risky and, when comparing its historical volatility, Digital China Holdings is 1.03 times less risky than Dadi Early. The stock trades about -0.09 of its potential returns per unit of risk. The Dadi Early Childhood Education is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,340  in Dadi Early Childhood Education on December 29, 2024 and sell it today you would earn a total of  480.00  from holding Dadi Early Childhood Education or generate 20.51% return on investment over 90 days.

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

Digital China Holdings  vs.  Dadi Early Childhood Education

Digital China Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digital China Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dadi Early Childhood

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dadi Early Childhood Education are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Dadi Early showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Digital China and Dadi Early

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

The idea behind Digital China Holdings and Dadi Early Childhood Education 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.