Correlation Between China Greatwall and Guangzhou Automobile

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

By analyzing existing cross correlation between China Greatwall Computer and Guangzhou Automobile Group, you can compare the effects of market volatilities on China Greatwall and Guangzhou Automobile 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 China Greatwall with a short position of Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Greatwall and Guangzhou Automobile.

Diversification Opportunities for China Greatwall and Guangzhou Automobile

0.45

Correlation Coefficient

China Greatwall  Guangzhou Automobile

Very weak diversification

The 3 months correlation between China and Guangzhou is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding China Greatwall Computer and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and China Greatwall 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 China Greatwall Computer are associated (or correlated) with Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of China Greatwall i.e., China Greatwall and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between China Greatwall and Guangzhou Automobile

Assuming the 90 days trading horizon China Greatwall Computer is expected to generate 1.66 times more return on investment than Guangzhou Automobile. However, China Greatwall is 1.66 times more volatile than Guangzhou Automobile Group. It trades about 0.06 of its potential returns per unit of risk. Guangzhou Automobile Group is currently generating about 0.01 per unit of risk. If you would invest  900.00  in China Greatwall Computer on October 6, 2024 and sell it today you would earn a total of  421.00  from holding China Greatwall Computer or generate 46.78% return on investment over 90 days.

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

China Greatwall Computer  vs.  Guangzhou Automobile Group

China Greatwall Computer

Risk-Adjusted Performance

5 of 100

Modest

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

Guangzhou Automobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Automobile Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangzhou Automobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Greatwall and Guangzhou Automobile

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

The idea behind China Greatwall Computer and Guangzhou Automobile 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.