Correlation Between Dirui Industrial and China Vanke

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

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

Diversification Opportunities for Dirui Industrial and China Vanke

0.86

Correlation Coefficient

Dirui Industrial  China Vanke

Very poor diversification

The 3 months correlation between Dirui and China is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Dirui Industrial Co and China Vanke Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Vanke and Dirui Industrial 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 Dirui Industrial Co are associated (or correlated) with China Vanke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Vanke has no effect on the direction of Dirui Industrial i.e., Dirui Industrial and China Vanke go up and down completely randomly.

Pair Corralation between Dirui Industrial and China Vanke

Assuming the 90 days trading horizon Dirui Industrial is expected to generate 1.43 times less return on investment than China Vanke. In addition to that, Dirui Industrial is 1.18 times more volatile than China Vanke Co. It trades about 0.09 of its total potential returns per unit of risk. China Vanke Co is currently generating about 0.16 per unit of volatility. If you would invest  642.00  in China Vanke Co on September 2, 2024 and sell it today you would earn a total of  218.00  from holding China Vanke Co or generate 33.96% return on investment over 90 days.

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

Dirui Industrial Co  vs.  China Vanke Co

Dirui Industrial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dirui Industrial Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dirui Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

China Vanke

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Vanke Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Vanke sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dirui Industrial and China Vanke

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

The idea behind Dirui Industrial Co and China Vanke 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.