Correlation Between Guangzhou Dongfang and Fibocom Wireless

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

Diversification Opportunities for Guangzhou Dongfang and Fibocom Wireless

-0.03

Correlation Coefficient

Guangzhou Dongfang  Fibocom Wireless

Good diversification

The 3 months correlation between Guangzhou and Fibocom is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Fibocom Wireless in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fibocom Wireless 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 Fibocom Wireless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fibocom Wireless has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Fibocom Wireless go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Fibocom Wireless

Assuming the 90 days trading horizon Guangzhou Dongfang is expected to generate 8.95 times less return on investment than Fibocom Wireless. But when comparing it to its historical volatility, Guangzhou Dongfang Hotel is 3.46 times less risky than Fibocom Wireless. It trades about 0.05 of its potential returns per unit of risk. Fibocom Wireless is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,238  in Fibocom Wireless on December 26, 2024 and sell it today you would earn a total of  830.00  from holding Fibocom Wireless or generate 37.09% return on investment over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Fibocom Wireless

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.

Fibocom Wireless

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fibocom Wireless are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fibocom Wireless sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Dongfang and Fibocom Wireless

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

The idea behind Guangzhou Dongfang Hotel and Fibocom Wireless 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.