Correlation Between Information Technology and Digital China
Can any of the company-specific risk be diversified away by investing in both Information Technology and Digital China 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 Technology and Digital China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Information Technology Total and Digital China Holdings, you can compare the effects of market volatilities on Information Technology and Digital China 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 Technology with a short position of Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and Digital China.
Diversification Opportunities for Information Technology and Digital China
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Information and Digital is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Digital China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Holdings and Information Technology 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 Technology Total are associated (or correlated) with Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Holdings has no effect on the direction of Information Technology i.e., Information Technology and Digital China go up and down completely randomly.
Pair Corralation between Information Technology and Digital China
Assuming the 90 days trading horizon Information Technology Total is expected to generate 1.53 times more return on investment than Digital China. However, Information Technology is 1.53 times more volatile than Digital China Holdings. It trades about 0.04 of its potential returns per unit of risk. Digital China Holdings is currently generating about 0.0 per unit of risk. If you would invest 3,391 in Information Technology Total on August 24, 2024 and sell it today you would earn a total of 1,159 from holding Information Technology Total or generate 34.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Information Technology Total vs. Digital China Holdings
Performance |
| Timeline |
| Information Technology |
| Digital China Holdings |
Information Technology and Digital China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Information Technology and Digital China
The main advantage of trading using opposite Information Technology and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Technology position performs unexpectedly, Digital China 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 Digital China will offset losses from the drop in Digital China's long position.| Information Technology vs. Digital China Holdings | Information Technology vs. Acer E Enabling Service | Information Technology vs. Sysage Technology Co | Information Technology vs. Green World Fintech |
| Digital China vs. Acer E Enabling Service | Digital China vs. Sysage Technology Co | Digital China vs. Green World Fintech | Digital China vs. Genesis Technology |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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