Correlation Between Dirui Industrial and Ningbo Ligong

Can any of the company-specific risk be diversified away by investing in both Dirui Industrial and Ningbo Ligong 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 Ningbo Ligong 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 Ningbo Ligong Online, you can compare the effects of market volatilities on Dirui Industrial and Ningbo Ligong 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 Ningbo Ligong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dirui Industrial and Ningbo Ligong.

Diversification Opportunities for Dirui Industrial and Ningbo Ligong

0.2

Correlation Coefficient

Dirui Industrial  Ningbo Ligong

Modest diversification

The 3 months correlation between Dirui and Ningbo is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Dirui Industrial Co and Ningbo Ligong Online in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Ligong Online 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 Ningbo Ligong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Ligong Online has no effect on the direction of Dirui Industrial i.e., Dirui Industrial and Ningbo Ligong go up and down completely randomly.

Pair Corralation between Dirui Industrial and Ningbo Ligong

Assuming the 90 days trading horizon Dirui Industrial Co is expected to generate 1.5 times more return on investment than Ningbo Ligong. However, Dirui Industrial is 1.5 times more volatile than Ningbo Ligong Online. It trades about 0.13 of its potential returns per unit of risk. Ningbo Ligong Online is currently generating about -0.01 per unit of risk. If you would invest  1,326  in Dirui Industrial Co on September 21, 2024 and sell it today you would earn a total of  424.00  from holding Dirui Industrial Co or generate 31.98% return on investment over 90 days.

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

Dirui Industrial Co  vs.  Ningbo Ligong Online

Dirui Industrial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dirui Industrial Co are ranked lower than 10 (%) 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.

Ningbo Ligong Online

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningbo Ligong Online has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ningbo Ligong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dirui Industrial and Ningbo Ligong

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

The idea behind Dirui Industrial Co and Ningbo Ligong Online 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.