Correlation Between Digital China and Darfon Electronics
Can any of the company-specific risk be diversified away by investing in both Digital China and Darfon Electronics 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 Darfon Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Digital China Holdings and Darfon Electronics Corp, you can compare the effects of market volatilities on Digital China and Darfon Electronics 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 Darfon Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital China and Darfon Electronics.
Diversification Opportunities for Digital China and Darfon Electronics
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Digital and Darfon is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Holdings and Darfon Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darfon Electronics Corp 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 Holdings are associated (or correlated) with Darfon Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darfon Electronics Corp has no effect on the direction of Digital China i.e., Digital China and Darfon Electronics go up and down completely randomly.
Pair Corralation between Digital China and Darfon Electronics
Assuming the 90 days trading horizon Digital China Holdings is expected to generate 1.32 times more return on investment than Darfon Electronics. However, Digital China is 1.32 times more volatile than Darfon Electronics Corp. It trades about 0.09 of its potential returns per unit of risk. Darfon Electronics Corp is currently generating about -0.03 per unit of risk. 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 |
Digital China Holdings vs. Darfon Electronics Corp
Performance |
| Timeline |
| Digital China Holdings |
| Darfon Electronics Corp |
Digital China and Darfon Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Digital China and Darfon Electronics
The main advantage of trading using opposite Digital China and Darfon Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digital China position performs unexpectedly, Darfon Electronics 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 Darfon Electronics will offset losses from the drop in Darfon Electronics' long position.| 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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