Correlation Between Guangzhou Dongfang and Fiberhome Telecommunicatio

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

Diversification Opportunities for Guangzhou Dongfang and Fiberhome Telecommunicatio

-0.22

Correlation Coefficient

Guangzhou Dongfang  Fiberhome Telecommunicatio

Very good diversification

The 3 months correlation between Guangzhou and Fiberhome is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Fiberhome Telecommunication Te in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fiberhome Telecommunicatio 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 Fiberhome Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fiberhome Telecommunicatio has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Fiberhome Telecommunicatio go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Fiberhome Telecommunicatio

Assuming the 90 days trading horizon Guangzhou Dongfang Hotel is expected to under-perform the Fiberhome Telecommunicatio. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Dongfang Hotel is 1.53 times less risky than Fiberhome Telecommunicatio. The stock trades about -0.06 of its potential returns per unit of risk. The Fiberhome Telecommunication Technologies is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,853  in Fiberhome Telecommunication Technologies on December 2, 2024 and sell it today you would earn a total of  597.00  from holding Fiberhome Telecommunication Technologies or generate 32.22% 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.  Fiberhome Telecommunication Te

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.

Fiberhome Telecommunicatio

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fiberhome Telecommunication Technologies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fiberhome Telecommunicatio sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Dongfang and Fiberhome Telecommunicatio

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

The idea behind Guangzhou Dongfang Hotel and Fiberhome Telecommunication Technologies 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.