Correlation Between China Development and Da Li

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

By analyzing existing cross correlation between China Development Financial and Da Li Development Co, you can compare the effects of market volatilities on China Development and Da Li 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 Development with a short position of Da Li. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Da Li.

Diversification Opportunities for China Development and Da Li

-0.46

Correlation Coefficient

China Development  Da Li

Very good diversification

The 3 months correlation between China and 6177 is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and Da Li Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Da Li Development and China Development 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 Development Financial are associated (or correlated) with Da Li. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Da Li Development has no effect on the direction of China Development i.e., China Development and Da Li go up and down completely randomly.

Pair Corralation between China Development and Da Li

Assuming the 90 days trading horizon China Development Financial is expected to generate 0.6 times more return on investment than Da Li. However, China Development Financial is 1.66 times less risky than Da Li. It trades about 0.08 of its potential returns per unit of risk. Da Li Development Co is currently generating about -0.07 per unit of risk. If you would invest  1,650  in China Development Financial on September 29, 2024 and sell it today you would earn a total of  105.00  from holding China Development Financial or generate 6.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

China Development Financial  vs.  Da Li Development Co

China Development

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Development may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Da Li Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Da Li Development Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with China Development and Da Li

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

The idea behind China Development Financial and Da Li Development Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.