Correlation Between Digital China and Information Technology

Specify exactly 2 symbols:
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 Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Digital China Holdings  vs.  Information Technology Total

 Performance 
       Timeline  
Digital China Holdings 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.
Information Technology 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.
The idea behind Digital China Holdings and Information Technology Total 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

Other Complementary Tools

Price Ceiling Movement
Calculate and plot Price Ceiling Movement for different equity instruments
Pair Correlation
Compare performance and examine fundamental relationship between any two equity instruments
Analyst Advice
Analyst recommendations and target price estimates broken down by several categories
Commodity Channel
Use Commodity Channel Index to analyze current equity momentum
Portfolio Suggestion
Get suggestions outside of your existing asset allocation including your own model portfolios