Correlation Between Digital China and Information Technology
Can any of the company-specific risk be diversified away by investing in both Digital China and Information Technology 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 Digital China and Information Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Digital China Holdings and Information Technology Total, you can compare the effects of market volatilities on Digital China and Information Technology 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 Digital China with a short position of Information Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Digital China and Information Technology.
Diversification Opportunities for Digital China and Information Technology
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Digital and Information is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Digital China Holdings and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology and Digital China 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 Digital China Holdings are associated (or correlated) with Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Digital China i.e., Digital China and Information Technology go up and down completely randomly.
Pair Corralation between Digital China and Information Technology
Assuming the 90 days trading horizon Digital China Holdings is expected to generate 1.48 times more return on investment than Information Technology. However, Digital China is 1.48 times more volatile than Information Technology Total. It trades about 0.2 of its potential returns per unit of risk. Information Technology Total is currently generating about 0.11 per unit of risk. If you would invest 673.00 in Digital China Holdings on September 15, 2024 and sell it today you would earn a total of 87.00 from holding Digital China Holdings or generate 12.93% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Digital China Holdings vs. Information Technology Total
Performance |
Timeline |
Digital China Holdings |
Information Technology |
Digital China and Information Technology Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Digital China and Information Technology
The main advantage of trading using opposite Digital China and Information Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digital China position performs unexpectedly, Information Technology 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 Information Technology will offset losses from the drop in Information Technology's long position.Digital China vs. Wistron Information Technology | Digital China vs. Syscom Computer Engineering | Digital China vs. Tatung System Technologies |
Information Technology vs. Wistron Information Technology | Information Technology vs. Syscom Computer Engineering | Information Technology vs. Tatung System Technologies |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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