Correlation Between Guangzhou Dongfang and Henan Shuanghui

Can any of the company-specific risk be diversified away by investing in both Guangzhou Dongfang and Henan Shuanghui 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 Henan Shuanghui 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 Henan Shuanghui Investment, you can compare the effects of market volatilities on Guangzhou Dongfang and Henan Shuanghui 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 Henan Shuanghui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Dongfang and Henan Shuanghui.

Diversification Opportunities for Guangzhou Dongfang and Henan Shuanghui

0.32

Correlation Coefficient

Guangzhou Dongfang  Henan Shuanghui

Weak diversification

The 3 months correlation between Guangzhou and Henan is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Henan Shuanghui Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shuanghui Inve 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 Henan Shuanghui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shuanghui Inve has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Henan Shuanghui go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Henan Shuanghui

Assuming the 90 days trading horizon Guangzhou Dongfang Hotel is expected to under-perform the Henan Shuanghui. In addition to that, Guangzhou Dongfang is 3.13 times more volatile than Henan Shuanghui Investment. It trades about -0.14 of its total potential returns per unit of risk. Henan Shuanghui Investment is currently generating about 0.01 per unit of volatility. If you would invest  2,571  in Henan Shuanghui Investment on October 9, 2024 and sell it today you would earn a total of  5.00  from holding Henan Shuanghui Investment or generate 0.19% 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.  Henan Shuanghui Investment

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Dongfang Hotel has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Henan Shuanghui Inve

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Guangzhou Dongfang and Henan Shuanghui

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

The idea behind Guangzhou Dongfang Hotel and Henan Shuanghui Investment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.