Correlation Between Darfon Electronics and Digital China
Can any of the company-specific risk be diversified away by investing in both Darfon Electronics 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 Darfon Electronics and Digital China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Darfon Electronics Corp and Digital China Holdings, you can compare the effects of market volatilities on Darfon Electronics 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 Darfon Electronics with a short position of Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darfon Electronics and Digital China.
Diversification Opportunities for Darfon Electronics and Digital China
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Darfon and Digital is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Darfon Electronics Corp 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 Darfon Electronics 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 Darfon Electronics Corp 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 Darfon Electronics i.e., Darfon Electronics and Digital China go up and down completely randomly.
Pair Corralation between Darfon Electronics and Digital China
Assuming the 90 days trading horizon Darfon Electronics Corp is expected to under-perform the Digital China. But the stock apears to be less risky and, when comparing its historical volatility, Darfon Electronics Corp is 1.32 times less risky than Digital China. The stock trades about -0.03 of its potential returns per unit of risk. The Digital China Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 661.00 in Digital China Holdings on September 2, 2024 and sell it today you would earn a total of 89.00 from holding Digital China Holdings or generate 13.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Darfon Electronics Corp vs. Digital China Holdings
Performance |
| Timeline |
| Darfon Electronics Corp |
| Digital China Holdings |
Darfon Electronics and Digital China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Darfon Electronics and Digital China
The main advantage of trading using opposite Darfon Electronics and Digital China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darfon Electronics 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.The idea behind Darfon Electronics Corp and Digital China Holdings 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.| Digital China vs. Acer E Enabling Service | Digital China vs. Green World Fintech | Digital China vs. Syscom Computer Engineering |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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