Correlation Between Guangzhou Dongfang and Hongrun Construction

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

Diversification Opportunities for Guangzhou Dongfang and Hongrun Construction

-0.3

Correlation Coefficient

Guangzhou Dongfang  Hongrun Construction

Very good diversification

The 3 months correlation between Guangzhou and Hongrun is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Hongrun Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongrun Construction 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 Hongrun Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hongrun Construction has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Hongrun Construction go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Hongrun Construction

Assuming the 90 days trading horizon Guangzhou Dongfang Hotel is expected to generate 1.35 times more return on investment than Hongrun Construction. However, Guangzhou Dongfang is 1.35 times more volatile than Hongrun Construction Group. It trades about 0.01 of its potential returns per unit of risk. Hongrun Construction Group is currently generating about 0.0 per unit of risk. If you would invest  1,113  in Guangzhou Dongfang Hotel on October 24, 2024 and sell it today you would lose (139.00) from holding Guangzhou Dongfang Hotel or give up 12.49% of portfolio value over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Hongrun Construction Group

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.

Hongrun Construction

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hongrun Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Dongfang and Hongrun Construction

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

The idea behind Guangzhou Dongfang Hotel and Hongrun Construction 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.