Correlation Between Dorman Products and China XD

Can any of the company-specific risk be diversified away by investing in both Dorman Products and China XD 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 Dorman Products and China XD into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dorman Products and China XD Plastics, you can compare the effects of market volatilities on Dorman Products and China XD 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 Dorman Products with a short position of China XD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dorman Products and China XD.

Diversification Opportunities for Dorman Products and China XD

0.43

Correlation Coefficient

Dorman Products  China XD

Very weak diversification

The 3 months correlation between Dorman and China is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and China XD Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China XD Plastics and Dorman Products 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 Dorman Products are associated (or correlated) with China XD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China XD Plastics has no effect on the direction of Dorman Products i.e., Dorman Products and China XD go up and down completely randomly.

Pair Corralation between Dorman Products and China XD

If you would invest  7,382  in Dorman Products on January 17, 2024 and sell it today you would earn a total of  1,594  from holding Dorman Products or generate 21.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	0.81%
Values	Daily Returns

Dorman Products  vs.  China XD Plastics

Dorman Products

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

China XD Plastics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China XD Plastics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, China XD is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dorman Products and China XD

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

The idea behind Dorman Products and China XD Plastics 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.