Correlation Between Diodes Incorporated and Daqo New

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

By analyzing existing cross correlation between Diodes Incorporated and Daqo New Energy, you can compare the effects of market volatilities on Diodes Incorporated and Daqo New 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 Diodes Incorporated with a short position of Daqo New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diodes Incorporated and Daqo New.

Diversification Opportunities for Diodes Incorporated and Daqo New

0.17

Correlation Coefficient

Diodes Incorporated  Daqo New

Average diversification

The 3 months correlation between Diodes and Daqo is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Diodes Incorporated and Daqo New Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daqo New Energy and Diodes Incorporated 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 Diodes Incorporated are associated (or correlated) with Daqo New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daqo New Energy has no effect on the direction of Diodes Incorporated i.e., Diodes Incorporated and Daqo New go up and down completely randomly.

Pair Corralation between Diodes Incorporated and Daqo New

Given the investment horizon of 90 days Diodes Incorporated is expected to generate 0.68 times more return on investment than Daqo New. However, Diodes Incorporated is 1.46 times less risky than Daqo New. It trades about 0.02 of its potential returns per unit of risk. Daqo New Energy is currently generating about -0.06 per unit of risk. If you would invest  6,131  in Diodes Incorporated on September 23, 2024 and sell it today you would earn a total of  25.00  from holding Diodes Incorporated or generate 0.41% return on investment over 90 days.

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

Diodes Incorporated  vs.  Daqo New Energy

Diodes Incorporated

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diodes Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Diodes Incorporated is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Daqo New Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daqo New Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Daqo New reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diodes Incorporated and Daqo New

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

The idea behind Diodes Incorporated and Daqo New Energy 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.