Correlation Between Yangmei Chemical and Dawning Information

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

By analyzing existing cross correlation between Yangmei Chemical Co and Dawning Information Industry, you can compare the effects of market volatilities on Yangmei Chemical and Dawning Information 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 Yangmei Chemical with a short position of Dawning Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yangmei Chemical and Dawning Information.

Diversification Opportunities for Yangmei Chemical and Dawning Information

0.86

Correlation Coefficient

Yangmei Chemical  Dawning Information

Very poor diversification

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

Pair Corralation between Yangmei Chemical and Dawning Information

Assuming the 90 days trading horizon Yangmei Chemical is expected to generate 1.42 times less return on investment than Dawning Information. But when comparing it to its historical volatility, Yangmei Chemical Co is 1.17 times less risky than Dawning Information. It trades about 0.25 of its potential returns per unit of risk. Dawning Information Industry is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  3,546  in Dawning Information Industry on September 13, 2024 and sell it today you would earn a total of  3,826  from holding Dawning Information Industry or generate 107.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Yangmei Chemical Co  vs.  Dawning Information Industry

Yangmei Chemical

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Yangmei Chemical Co are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yangmei Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Dawning Information

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dawning Information Industry are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dawning Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yangmei Chemical and Dawning Information

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

The idea behind Yangmei Chemical Co and Dawning Information Industry 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.