Correlation Between Guangzhou Dongfang and Bohai Leasing

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

By analyzing existing cross correlation between Guangzhou Dongfang Hotel and Bohai Leasing Co, you can compare the effects of market volatilities on Guangzhou Dongfang and Bohai Leasing 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 Guangzhou Dongfang with a short position of Bohai Leasing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Dongfang and Bohai Leasing.

Diversification Opportunities for Guangzhou Dongfang and Bohai Leasing

0.39

Correlation Coefficient

Guangzhou Dongfang  Bohai Leasing

Weak diversification

The 3 months correlation between Guangzhou and Bohai is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Bohai Leasing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bohai Leasing and Guangzhou Dongfang 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 Guangzhou Dongfang Hotel are associated (or correlated) with Bohai Leasing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bohai Leasing has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Bohai Leasing go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Bohai Leasing

Assuming the 90 days trading horizon Guangzhou Dongfang Hotel is expected to generate 0.97 times more return on investment than Bohai Leasing. However, Guangzhou Dongfang Hotel is 1.03 times less risky than Bohai Leasing. It trades about 0.05 of its potential returns per unit of risk. Bohai Leasing Co is currently generating about -0.17 per unit of risk. If you would invest  994.00  in Guangzhou Dongfang Hotel on December 26, 2024 and sell it today you would earn a total of  38.00  from holding Guangzhou Dongfang Hotel or generate 3.82% return on investment over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Bohai Leasing Co

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Dongfang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bohai Leasing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bohai Leasing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Guangzhou Dongfang and Bohai Leasing

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

The idea behind Guangzhou Dongfang Hotel and Bohai Leasing Co 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.