Correlation Between Zhejiang Orient and Dazhong Transportation

Can any of the company-specific risk be diversified away by investing in both Zhejiang Orient and Dazhong Transportation 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 Zhejiang Orient and Dazhong Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Orient Gene and Dazhong Transportation Group, you can compare the effects of market volatilities on Zhejiang Orient and Dazhong Transportation 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 Zhejiang Orient with a short position of Dazhong Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Orient and Dazhong Transportation.

Diversification Opportunities for Zhejiang Orient and Dazhong Transportation

0.83

Correlation Coefficient

Zhejiang Orient  Dazhong Transportation

Very poor diversification

The 3 months correlation between Zhejiang and Dazhong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Orient Gene and Dazhong Transportation Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dazhong Transportation and Zhejiang Orient 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 Zhejiang Orient Gene are associated (or correlated) with Dazhong Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dazhong Transportation has no effect on the direction of Zhejiang Orient i.e., Zhejiang Orient and Dazhong Transportation go up and down completely randomly.

Pair Corralation between Zhejiang Orient and Dazhong Transportation

Assuming the 90 days trading horizon Zhejiang Orient is expected to generate 1.85 times less return on investment than Dazhong Transportation. In addition to that, Zhejiang Orient is 1.2 times more volatile than Dazhong Transportation Group. It trades about 0.07 of its total potential returns per unit of risk. Dazhong Transportation Group is currently generating about 0.15 per unit of volatility. If you would invest  20.00  in Dazhong Transportation Group on September 5, 2024 and sell it today you would earn a total of  6.00  from holding Dazhong Transportation Group or generate 30.0% return on investment over 90 days.

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

Zhejiang Orient Gene  vs.  Dazhong Transportation Group

Zhejiang Orient Gene

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Orient Gene are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Orient sustained solid returns over the last few months and may actually be approaching a breakup point.

Dazhong Transportation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dazhong Transportation Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dazhong Transportation sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Orient and Dazhong Transportation

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

The idea behind Zhejiang Orient Gene and Dazhong Transportation Group 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.