Correlation Between Hunan Investment and Guangzhou Zhujiang

Can any of the company-specific risk be diversified away by investing in both Hunan Investment and Guangzhou Zhujiang 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 Hunan Investment and Guangzhou Zhujiang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hunan Investment Group and Guangzhou Zhujiang Brewery, you can compare the effects of market volatilities on Hunan Investment and Guangzhou Zhujiang 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 Hunan Investment with a short position of Guangzhou Zhujiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Investment and Guangzhou Zhujiang.

Diversification Opportunities for Hunan Investment and Guangzhou Zhujiang

0.55

Correlation Coefficient

Hunan Investment  Guangzhou Zhujiang

Very weak diversification

The 3 months correlation between Hunan and Guangzhou is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Investment Group and Guangzhou Zhujiang Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Zhujiang and Hunan Investment 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 Hunan Investment Group are associated (or correlated) with Guangzhou Zhujiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Zhujiang has no effect on the direction of Hunan Investment i.e., Hunan Investment and Guangzhou Zhujiang go up and down completely randomly.

Pair Corralation between Hunan Investment and Guangzhou Zhujiang

Assuming the 90 days trading horizon Hunan Investment Group is expected to under-perform the Guangzhou Zhujiang. In addition to that, Hunan Investment is 2.14 times more volatile than Guangzhou Zhujiang Brewery. It trades about -0.03 of its total potential returns per unit of risk. Guangzhou Zhujiang Brewery is currently generating about 0.32 per unit of volatility. If you would invest  872.00  in Guangzhou Zhujiang Brewery on September 23, 2024 and sell it today you would earn a total of  95.00  from holding Guangzhou Zhujiang Brewery or generate 10.89% return on investment over 90 days.

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

Hunan Investment Group  vs.  Guangzhou Zhujiang Brewery

Hunan Investment

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Investment Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Zhujiang

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Zhujiang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hunan Investment and Guangzhou Zhujiang

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

The idea behind Hunan Investment Group and Guangzhou Zhujiang Brewery 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.