Correlation Between Daqo New and CVD Equipment

Can any of the company-specific risk be diversified away by investing in both Daqo New and CVD Equipment 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 Daqo New and CVD Equipment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daqo New Energy and CVD Equipment, you can compare the effects of market volatilities on Daqo New and CVD Equipment 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 Daqo New with a short position of CVD Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daqo New and CVD Equipment.

Diversification Opportunities for Daqo New and CVD Equipment

-0.48

Correlation Coefficient

Daqo New  CVD Equipment

Very good diversification

The 3 months correlation between Daqo and CVD is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and CVD Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVD Equipment and Daqo New 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 Daqo New Energy are associated (or correlated) with CVD Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVD Equipment has no effect on the direction of Daqo New i.e., Daqo New and CVD Equipment go up and down completely randomly.

Pair Corralation between Daqo New and CVD Equipment

Allowing for the 90-day total investment horizon Daqo New Energy is expected to under-perform the CVD Equipment. But the stock apears to be less risky and, when comparing its historical volatility, Daqo New Energy is 1.2 times less risky than CVD Equipment. The stock trades about -0.02 of its potential returns per unit of risk. The CVD Equipment is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  564.00  in CVD Equipment on September 23, 2024 and sell it today you would lose (188.00) from holding CVD Equipment or give up 33.33% of portfolio value over 90 days.

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

Daqo New Energy  vs.  CVD Equipment

Daqo New Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daqo New Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Daqo New reported solid returns over the last few months and may actually be approaching a breakup point.

CVD Equipment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CVD Equipment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, CVD Equipment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daqo New and CVD Equipment

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

The idea behind Daqo New Energy and CVD Equipment 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..