Correlation Between China Express and DO Home

Can any of the company-specific risk be diversified away by investing in both China Express and DO 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 China Express and DO Home into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Express Airlines and DO Home Collection, you can compare the effects of market volatilities on China Express and DO 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 China Express with a short position of DO Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Express and DO Home.

Diversification Opportunities for China Express and DO Home

0.91

Correlation Coefficient

China Express  DO Home

Almost no diversification

The 3 months correlation between China and 002798 is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding China Express Airlines and DO Home Collection in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DO Home Collection and China Express 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 Express Airlines are associated (or correlated) with DO Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DO Home Collection has no effect on the direction of China Express i.e., China Express and DO Home go up and down completely randomly.

Pair Corralation between China Express and DO Home

Assuming the 90 days trading horizon China Express Airlines is expected to generate 0.96 times more return on investment than DO Home. However, China Express Airlines is 1.05 times less risky than DO Home. It trades about 0.27 of its potential returns per unit of risk. DO Home Collection is currently generating about 0.24 per unit of risk. If you would invest  533.00  in China Express Airlines on September 13, 2024 and sell it today you would earn a total of  310.00  from holding China Express Airlines or generate 58.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

China Express Airlines  vs.  DO Home Collection

China Express Airlines

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Express Airlines are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Express sustained solid returns over the last few months and may actually be approaching a breakup point.

DO Home Collection

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DO Home Collection are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DO Home sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Express and DO Home

The main advantage of trading using opposite China Express and DO Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Express position performs unexpectedly, DO 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 DO Home will offset losses from the drop in DO Home's long position.

The idea behind China Express Airlines and DO Home Collection 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.