Correlation Between China Railway and Digital Locations
Can any of the company-specific risk be diversified away by investing in both China Railway and Digital Locations 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 China Railway and Digital Locations into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Railway Group and Digital Locations, you can compare the effects of market volatilities on China Railway and Digital Locations 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 China Railway with a short position of Digital Locations. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Digital Locations.
Diversification Opportunities for China Railway and Digital Locations
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between China and Digital is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Digital Locations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Locations and China Railway 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 China Railway Group are associated (or correlated) with Digital Locations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Locations has no effect on the direction of China Railway i.e., China Railway and Digital Locations go up and down completely randomly.
Pair Corralation between China Railway and Digital Locations
Assuming the 90 days horizon China Railway is expected to generate 16.32 times less return on investment than Digital Locations. But when comparing it to its historical volatility, China Railway Group is 4.57 times less risky than Digital Locations. It trades about 0.02 of its potential returns per unit of risk. Digital Locations is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 0.09 in Digital Locations on September 14, 2024 and sell it today you would lose (0.04) from holding Digital Locations or give up 44.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Railway Group vs. Digital Locations
Performance |
| Timeline |
| China Railway Group |
| Digital Locations |
China Railway and Digital Locations Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Railway and Digital Locations
The main advantage of trading using opposite China Railway and Digital Locations positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway position performs unexpectedly, Digital Locations 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 Locations will offset losses from the drop in Digital Locations' long position.| China Railway vs. Arcadis NV | China Railway vs. Skanska AB ser | China Railway vs. Digital Locations | China Railway vs. Koss Corporation |
| Digital Locations vs. Arcadis NV | Digital Locations vs. China Railway Group | Digital Locations vs. Skanska AB ser | Digital Locations vs. Koss Corporation |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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