Correlation Between Datang International and AVITA Medical

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

By analyzing existing cross correlation between Datang International Power and AVITA Medical, you can compare the effects of market volatilities on Datang International and AVITA Medical 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 Datang International with a short position of AVITA Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datang International and AVITA Medical.

Diversification Opportunities for Datang International and AVITA Medical

-0.49

Correlation Coefficient

Datang International  AVITA Medical

Very good diversification

The 3 months correlation between Datang and AVITA is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Datang International Power and AVITA Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVITA Medical and Datang International 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 Datang International Power are associated (or correlated) with AVITA Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVITA Medical has no effect on the direction of Datang International i.e., Datang International and AVITA Medical go up and down completely randomly.

Pair Corralation between Datang International and AVITA Medical

Assuming the 90 days horizon Datang International is expected to generate 24.09 times less return on investment than AVITA Medical. But when comparing it to its historical volatility, Datang International Power is 2.08 times less risky than AVITA Medical. It trades about 0.01 of its potential returns per unit of risk. AVITA Medical is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  240.00  in AVITA Medical on October 5, 2024 and sell it today you would earn a total of  16.00  from holding AVITA Medical or generate 6.67% return on investment over 90 days.

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

Datang International Power  vs.  AVITA Medical

Datang International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Datang International Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

AVITA Medical

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days AVITA Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile forward-looking signals, AVITA Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Datang International and AVITA Medical

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

The idea behind Datang International Power and AVITA Medical 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.