Correlation Between Dazhong Transportation and Heilongjiang Transport

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

Diversification Opportunities for Dazhong Transportation and Heilongjiang Transport

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Dazhong and Heilongjiang is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Heilongjiang Transport Develop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heilongjiang Transport and Dazhong Transportation 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 Dazhong Transportation Group are associated (or correlated) with Heilongjiang Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heilongjiang Transport has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Heilongjiang Transport go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Heilongjiang Transport

Assuming the 90 days trading horizon Dazhong Transportation is expected to generate 1.02 times less return on investment than Heilongjiang Transport. In addition to that, Dazhong Transportation is 1.07 times more volatile than Heilongjiang Transport Development. It trades about 0.03 of its total potential returns per unit of risk. Heilongjiang Transport Development is currently generating about 0.04 per unit of volatility. If you would invest  290.00  in Heilongjiang Transport Development on November 3, 2024 and sell it today you would earn a total of  50.00  from holding Heilongjiang Transport Development or generate 17.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Dazhong Transportation Group  vs.  Heilongjiang Transport Develop

 Performance 
       Timeline  
Dazhong Transportation 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Dazhong Transportation Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Heilongjiang Transport 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Heilongjiang Transport Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Dazhong Transportation and Heilongjiang Transport Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dazhong Transportation and Heilongjiang Transport

The main advantage of trading using opposite Dazhong Transportation and Heilongjiang Transport positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dazhong Transportation position performs unexpectedly, Heilongjiang Transport 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 Heilongjiang Transport will offset losses from the drop in Heilongjiang Transport's long position.
The idea behind Dazhong Transportation Group and Heilongjiang Transport Development 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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