Correlation Between Daqo New and InTest

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

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

Diversification Opportunities for Daqo New and InTest

-0.14

Correlation Coefficient

Daqo New  InTest

Good diversification

The 3 months correlation between Daqo and InTest is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and inTest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on inTest and Daqo New 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 Daqo New Energy are associated (or correlated) with InTest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of inTest has no effect on the direction of Daqo New i.e., Daqo New and InTest go up and down completely randomly.

Pair Corralation between Daqo New and InTest

Allowing for the 90-day total investment horizon Daqo New Energy is expected to generate 1.25 times more return on investment than InTest. However, Daqo New is 1.25 times more volatile than inTest. It trades about -0.02 of its potential returns per unit of risk. inTest is currently generating about -0.06 per unit of risk. If you would invest  3,970  in Daqo New Energy on October 22, 2024 and sell it today you would lose (2,063) from holding Daqo New Energy or give up 51.96% of portfolio value over 90 days.

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

Daqo New Energy  vs.  inTest

Daqo New Energy

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Daqo New Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Daqo New is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

inTest

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in inTest are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, InTest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daqo New and InTest

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

The idea behind Daqo New Energy and inTest 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.