Correlation Between Dazhong Transportation and Zoy Home

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Can any of the company-specific risk be diversified away by investing in both Dazhong Transportation and Zoy Home 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 Zoy Home 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 Zoy Home Furnishing, you can compare the effects of market volatilities on Dazhong Transportation and Zoy Home 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 Zoy Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dazhong Transportation and Zoy Home.

Diversification Opportunities for Dazhong Transportation and Zoy Home

DazhongZoyDiversified AwayDazhongZoyDiversified Away100%
0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Dazhong and Zoy is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Zoy Home Furnishing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zoy Home Furnishing 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 Zoy Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zoy Home Furnishing has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Zoy Home go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Zoy Home

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to generate 0.81 times more return on investment than Zoy Home. However, Dazhong Transportation Group is 1.24 times less risky than Zoy Home. It trades about 0.01 of its potential returns per unit of risk. Zoy Home Furnishing is currently generating about 0.0 per unit of risk. If you would invest  25.00  in Dazhong Transportation Group on November 30, 2024 and sell it today you would lose (1.00) from holding Dazhong Transportation Group or give up 4.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Dazhong Transportation Group  vs.  Zoy Home Furnishing

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-50510
JavaScript chart by amCharts 3.21.15900903 603709
       Timeline  
Dazhong Transportation 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb0.210.220.230.240.250.260.27
Zoy Home Furnishing 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Zoy Home Furnishing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zoy Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb9.51010.51111.51212.513

Dazhong Transportation and Zoy Home Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.46-2.61-1.76-0.91-0.05760.761.572.383.194.0 0.040.050.060.070.080.09
JavaScript chart by amCharts 3.21.15900903 603709
       Returns  

Pair Trading with Dazhong Transportation and Zoy Home

The main advantage of trading using opposite Dazhong Transportation and Zoy Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dazhong Transportation position performs unexpectedly, Zoy Home 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 Zoy Home will offset losses from the drop in Zoy Home's long position.
The idea behind Dazhong Transportation Group and Zoy Home Furnishing 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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