Correlation Between Dongbang Transport and SDN

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

By analyzing existing cross correlation between Dongbang Transport Logistics and SDN Company, you can compare the effects of market volatilities on Dongbang Transport and SDN 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 Dongbang Transport with a short position of SDN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongbang Transport and SDN.

Diversification Opportunities for Dongbang Transport and SDN

0.79

Correlation Coefficient

Dongbang Transport  SDN

Poor diversification

The 3 months correlation between Dongbang and SDN is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dongbang Transport Logistics and SDN Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SDN Company and Dongbang Transport 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 Dongbang Transport Logistics are associated (or correlated) with SDN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SDN Company has no effect on the direction of Dongbang Transport i.e., Dongbang Transport and SDN go up and down completely randomly.

Pair Corralation between Dongbang Transport and SDN

Assuming the 90 days trading horizon Dongbang Transport is expected to generate 10.91 times less return on investment than SDN. But when comparing it to its historical volatility, Dongbang Transport Logistics is 1.27 times less risky than SDN. It trades about 0.02 of its potential returns per unit of risk. SDN Company is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  100,500  in SDN Company on September 14, 2024 and sell it today you would earn a total of  19,500  from holding SDN Company or generate 19.4% return on investment over 90 days.

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

Dongbang Transport Logistics  vs.  SDN Company

Dongbang Transport

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongbang Transport Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SDN Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SDN Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dongbang Transport and SDN

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

The idea behind Dongbang Transport Logistics and SDN Company 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.