Correlation Between Color Star and The9

Can any of the company-specific risk be diversified away by investing in both Color Star and The9 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 Color Star and The9 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Color Star Technology and The9 Ltd ADR, you can compare the effects of market volatilities on Color Star and The9 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 Color Star with a short position of The9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Color Star and The9.

Diversification Opportunities for Color Star and The9

0.63

Correlation Coefficient

Color Star  The9

Poor diversification

The 3 months correlation between Color and The9 is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Color Star Technology and The9 Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The9 Ltd ADR and Color Star 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 Color Star Technology are associated (or correlated) with The9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The9 Ltd ADR has no effect on the direction of Color Star i.e., Color Star and The9 go up and down completely randomly.

Pair Corralation between Color Star and The9

Considering the 90-day investment horizon Color Star Technology is expected to under-perform the The9. In addition to that, Color Star is 1.06 times more volatile than The9 Ltd ADR. It trades about -0.27 of its total potential returns per unit of risk. The9 Ltd ADR is currently generating about 0.0 per unit of volatility. If you would invest  1,571  in The9 Ltd ADR on December 27, 2024 and sell it today you would lose (111.00) from holding The9 Ltd ADR or give up 7.07% of portfolio value over 90 days.

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

Color Star Technology  vs.  The9 Ltd ADR

Color Star Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Color Star Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

The9 Ltd ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days The9 Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, The9 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Color Star and The9

The main advantage of trading using opposite Color Star and The9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Color Star position performs unexpectedly, The9 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 The9 will offset losses from the drop in The9's long position.

The idea behind Color Star Technology and The9 Ltd ADR 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.