Correlation Between Guangzhou Dongfang and Tianshui Huatian

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

Diversification Opportunities for Guangzhou Dongfang and Tianshui Huatian

0.66

Correlation Coefficient

Guangzhou Dongfang  Tianshui Huatian

Poor diversification

The 3 months correlation between Guangzhou and Tianshui is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Tianshui Huatian Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianshui Huatian Tec 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 Tianshui Huatian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianshui Huatian Tec has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Tianshui Huatian go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Tianshui Huatian

Assuming the 90 days trading horizon Guangzhou Dongfang Hotel is expected to generate 1.08 times more return on investment than Tianshui Huatian. However, Guangzhou Dongfang is 1.08 times more volatile than Tianshui Huatian Technology. It trades about -0.06 of its potential returns per unit of risk. Tianshui Huatian Technology is currently generating about -0.07 per unit of risk. If you would invest  1,060  in Guangzhou Dongfang Hotel on December 1, 2024 and sell it today you would lose (95.00) from holding Guangzhou Dongfang Hotel or give up 8.96% of portfolio value over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Tianshui Huatian Technology

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Tianshui Huatian Tec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianshui Huatian Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Guangzhou Dongfang and Tianshui Huatian

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

The idea behind Guangzhou Dongfang Hotel and Tianshui Huatian Technology 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.