Correlation Between Guangzhou Dongfang and Zhongzhu Medical

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

Diversification Opportunities for Guangzhou Dongfang and Zhongzhu Medical

0.51

Correlation Coefficient

Guangzhou Dongfang  Zhongzhu Medical

Very weak diversification

The 3 months correlation between Guangzhou and Zhongzhu is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Zhongzhu Medical Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongzhu Medical Holdings 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 Zhongzhu Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongzhu Medical Holdings has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Zhongzhu Medical go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Zhongzhu Medical

Assuming the 90 days trading horizon Guangzhou Dongfang is expected to generate 2.86 times less return on investment than Zhongzhu Medical. But when comparing it to its historical volatility, Guangzhou Dongfang Hotel is 1.12 times less risky than Zhongzhu Medical. It trades about 0.03 of its potential returns per unit of risk. Zhongzhu Medical Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  136.00  in Zhongzhu Medical Holdings on December 27, 2024 and sell it today you would earn a total of  12.00  from holding Zhongzhu Medical Holdings or generate 8.82% return on investment over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Zhongzhu Medical Holdings

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 2 (%) 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.

Zhongzhu Medical Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongzhu Medical Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongzhu Medical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Guangzhou Dongfang and Zhongzhu Medical

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

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