Correlation Between INFORMATION SVC and China DatangRenewable

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

By analyzing existing cross correlation between INFORMATION SVC GRP and China Datang, you can compare the effects of market volatilities on INFORMATION SVC and China DatangRenewable 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 INFORMATION SVC with a short position of China DatangRenewable. Check out your portfolio center. Please also check ongoing floating volatility patterns of INFORMATION SVC and China DatangRenewable.

Diversification Opportunities for INFORMATION SVC and China DatangRenewable

0.54

Correlation Coefficient

INFORMATION SVC  China DatangRenewable

Very weak diversification

The 3 months correlation between INFORMATION and China is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding INFORMATION SVC GRP and China Datang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China DatangRenewable and INFORMATION SVC 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 INFORMATION SVC GRP are associated (or correlated) with China DatangRenewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China DatangRenewable has no effect on the direction of INFORMATION SVC i.e., INFORMATION SVC and China DatangRenewable go up and down completely randomly.

Pair Corralation between INFORMATION SVC and China DatangRenewable

Assuming the 90 days horizon INFORMATION SVC GRP is expected to generate 0.6 times more return on investment than China DatangRenewable. However, INFORMATION SVC GRP is 1.67 times less risky than China DatangRenewable. It trades about 0.07 of its potential returns per unit of risk. China Datang is currently generating about 0.04 per unit of risk. If you would invest  296.00  in INFORMATION SVC GRP on October 5, 2024 and sell it today you would earn a total of  24.00  from holding INFORMATION SVC GRP or generate 8.11% return on investment over 90 days.

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

INFORMATION SVC GRP  vs.  China Datang

INFORMATION SVC GRP

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days INFORMATION SVC GRP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, INFORMATION SVC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China DatangRenewable

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days China Datang has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, China DatangRenewable may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with INFORMATION SVC and China DatangRenewable

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

The idea behind INFORMATION SVC GRP and China Datang 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.