Correlation Between Shandong and Guangzhou Automobile

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

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

Diversification Opportunities for Shandong and Guangzhou Automobile

0.64

Correlation Coefficient

Shandong  Guangzhou Automobile

Poor diversification

The 3 months correlation between Shandong and Guangzhou is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hi Speed RoadBridge and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Shandong 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 Shandong Hi Speed RoadBridge 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 Shandong i.e., Shandong and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Shandong and Guangzhou Automobile

Assuming the 90 days trading horizon Shandong Hi Speed RoadBridge is expected to under-perform the Guangzhou Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Hi Speed RoadBridge is 1.68 times less risky than Guangzhou Automobile. The stock trades about -0.01 of its potential returns per unit of risk. The Guangzhou Automobile Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  848.00  in Guangzhou Automobile Group on September 26, 2024 and sell it today you would earn a total of  99.00  from holding Guangzhou Automobile Group or generate 11.67% return on investment over 90 days.

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

Shandong Hi Speed RoadBridge  vs.  Guangzhou Automobile Group

Shandong Hi Speed

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hi Speed RoadBridge are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guangzhou Automobile

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong and Guangzhou Automobile

The main advantage of trading using opposite Shandong and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong 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 Shandong Hi Speed RoadBridge 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.