Correlation Between Digital China and Zhongfu Information

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Can any of the company-specific risk be diversified away by investing in both Digital China and Zhongfu Information 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 Digital China and Zhongfu Information into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Digital China Information and Zhongfu Information, you can compare the effects of market volatilities on Digital China and Zhongfu Information 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 Digital China with a short position of Zhongfu Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital China and Zhongfu Information.

Diversification Opportunities for Digital China and Zhongfu Information

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Digital and Zhongfu is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Information and Zhongfu Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongfu Information and Digital China 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 Digital China Information are associated (or correlated) with Zhongfu Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongfu Information has no effect on the direction of Digital China i.e., Digital China and Zhongfu Information go up and down completely randomly.

Pair Corralation between Digital China and Zhongfu Information

Assuming the 90 days trading horizon Digital China Information is expected to generate 0.71 times more return on investment than Zhongfu Information. However, Digital China Information is 1.42 times less risky than Zhongfu Information. It trades about 0.0 of its potential returns per unit of risk. Zhongfu Information is currently generating about -0.01 per unit of risk. If you would invest  1,166  in Digital China Information on October 12, 2024 and sell it today you would lose (150.00) from holding Digital China Information or give up 12.86% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Digital China Information  vs.  Zhongfu Information

 Performance 
       Timeline  
Digital China Information 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Digital China Information has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Digital China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Zhongfu Information 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Zhongfu Information has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zhongfu Information is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Digital China and Zhongfu Information Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Digital China and Zhongfu Information

The main advantage of trading using opposite Digital China and Zhongfu Information positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digital China position performs unexpectedly, Zhongfu Information 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 Zhongfu Information will offset losses from the drop in Zhongfu Information's long position.
The idea behind Digital China Information and Zhongfu Information 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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