Correlation Between Dongxing Sec and Sinocat Environmental

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

By analyzing existing cross correlation between Dongxing Sec Co and Sinocat Environmental Technology, you can compare the effects of market volatilities on Dongxing Sec and Sinocat Environmental 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 Dongxing Sec with a short position of Sinocat Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongxing Sec and Sinocat Environmental.

Diversification Opportunities for Dongxing Sec and Sinocat Environmental

0.63

Correlation Coefficient

Dongxing Sec  Sinocat Environmental

Poor diversification

The 3 months correlation between Dongxing and Sinocat is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dongxing Sec Co and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental and Dongxing Sec 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 Dongxing Sec Co are associated (or correlated) with Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Dongxing Sec i.e., Dongxing Sec and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Dongxing Sec and Sinocat Environmental

Assuming the 90 days trading horizon Dongxing Sec is expected to generate 1.37 times less return on investment than Sinocat Environmental. But when comparing it to its historical volatility, Dongxing Sec Co is 1.22 times less risky than Sinocat Environmental. It trades about 0.14 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,244  in Sinocat Environmental Technology on September 24, 2024 and sell it today you would earn a total of  587.00  from holding Sinocat Environmental Technology or generate 47.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Dongxing Sec Co  vs.  Sinocat Environmental Technolo

Dongxing Sec

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dongxing Sec Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongxing Sec sustained solid returns over the last few months and may actually be approaching a breakup point.

Sinocat Environmental

Risk-Adjusted Performance

12 of 100

Solid

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

Pair Trading with Dongxing Sec and Sinocat Environmental

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

The idea behind Dongxing Sec Co and Sinocat Environmental Technology 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.