Correlation Between Guangzhou Dongfang and Biwin Storage

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

Diversification Opportunities for Guangzhou Dongfang and Biwin Storage

0.86

Correlation Coefficient

Guangzhou Dongfang  Biwin Storage

Very poor diversification

The 3 months correlation between Guangzhou and Biwin is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Biwin Storage Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biwin Storage Technology 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 Biwin Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biwin Storage Technology has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Biwin Storage go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Biwin Storage

Assuming the 90 days trading horizon Guangzhou Dongfang is expected to generate 1.75 times less return on investment than Biwin Storage. But when comparing it to its historical volatility, Guangzhou Dongfang Hotel is 2.08 times less risky than Biwin Storage. It trades about 0.15 of its potential returns per unit of risk. Biwin Storage Technology is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,376  in Biwin Storage Technology on September 4, 2024 and sell it today you would earn a total of  1,597  from holding Biwin Storage Technology or generate 36.49% 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.  Biwin Storage Technology

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Dongfang sustained solid returns over the last few months and may actually be approaching a breakup point.

Biwin Storage Technology

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Guangzhou Dongfang and Biwin Storage

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

The idea behind Guangzhou Dongfang Hotel and Biwin Storage 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.