Correlation Between Guangzhou Dongfang and Hengerda New

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

Diversification Opportunities for Guangzhou Dongfang and Hengerda New

0.87

Correlation Coefficient

Guangzhou Dongfang  Hengerda New

Very poor diversification

The 3 months correlation between Guangzhou and Hengerda is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Hengerda New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengerda New Materials 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 Hengerda New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengerda New Materials has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Hengerda New go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Hengerda New

Assuming the 90 days trading horizon Guangzhou Dongfang is expected to generate 2.18 times less return on investment than Hengerda New. But when comparing it to its historical volatility, Guangzhou Dongfang Hotel is 1.35 times less risky than Hengerda New. It trades about 0.07 of its potential returns per unit of risk. Hengerda New Materials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,324  in Hengerda New Materials on September 26, 2024 and sell it today you would earn a total of  546.00  from holding Hengerda New Materials or generate 23.49% return on investment over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Hengerda New Materials

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Dongfang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hengerda New Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengerda New Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengerda New sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Dongfang and Hengerda New

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

The idea behind Guangzhou Dongfang Hotel and Hengerda New Materials 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.