Correlation Between DONGJIANG ENVIRONMENTAL and Mitsubishi Materials

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

By analyzing existing cross correlation between DONGJIANG ENVIRONMENTAL H and Mitsubishi Materials, you can compare the effects of market volatilities on DONGJIANG ENVIRONMENTAL and Mitsubishi Materials 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 DONGJIANG ENVIRONMENTAL with a short position of Mitsubishi Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of DONGJIANG ENVIRONMENTAL and Mitsubishi Materials.

Diversification Opportunities for DONGJIANG ENVIRONMENTAL and Mitsubishi Materials

0.04

Correlation Coefficient

DONGJIANG ENVIRONMENTAL  Mitsubishi Materials

Significant diversification

The 3 months correlation between DONGJIANG and Mitsubishi is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding DONGJIANG ENVIRONMENTAL H and Mitsubishi Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Materials and DONGJIANG ENVIRONMENTAL 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 DONGJIANG ENVIRONMENTAL H are associated (or correlated) with Mitsubishi Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Materials has no effect on the direction of DONGJIANG ENVIRONMENTAL i.e., DONGJIANG ENVIRONMENTAL and Mitsubishi Materials go up and down completely randomly.

Pair Corralation between DONGJIANG ENVIRONMENTAL and Mitsubishi Materials

Assuming the 90 days horizon DONGJIANG ENVIRONMENTAL H is expected to generate 5.39 times more return on investment than Mitsubishi Materials. However, DONGJIANG ENVIRONMENTAL is 5.39 times more volatile than Mitsubishi Materials. It trades about 0.03 of its potential returns per unit of risk. Mitsubishi Materials is currently generating about 0.15 per unit of risk. If you would invest  22.00  in DONGJIANG ENVIRONMENTAL H on December 23, 2024 and sell it today you would lose (1.00) from holding DONGJIANG ENVIRONMENTAL H or give up 4.55% of portfolio value over 90 days.

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

DONGJIANG ENVIRONMENTAL H  vs.  Mitsubishi Materials

DONGJIANG ENVIRONMENTAL

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DONGJIANG ENVIRONMENTAL H are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, DONGJIANG ENVIRONMENTAL reported solid returns over the last few months and may actually be approaching a breakup point.

Mitsubishi Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Materials are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking indicators, Mitsubishi Materials exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DONGJIANG ENVIRONMENTAL and Mitsubishi Materials

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

The idea behind DONGJIANG ENVIRONMENTAL H and Mitsubishi Materials 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.