Correlation Between ChengDu Hi and Guangxi Wuzhou

Can any of the company-specific risk be diversified away by investing in both ChengDu Hi and Guangxi Wuzhou 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 ChengDu Hi and Guangxi Wuzhou into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ChengDu Hi Tech Development and Guangxi Wuzhou Communications, you can compare the effects of market volatilities on ChengDu Hi and Guangxi Wuzhou 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 ChengDu Hi with a short position of Guangxi Wuzhou. Check out your portfolio center. Please also check ongoing floating volatility patterns of ChengDu Hi and Guangxi Wuzhou.

Diversification Opportunities for ChengDu Hi and Guangxi Wuzhou

0.05

Correlation Coefficient

ChengDu Hi  Guangxi Wuzhou

Significant diversification

The 3 months correlation between ChengDu and Guangxi is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and Guangxi Wuzhou Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangxi Wuzhou Commu and ChengDu Hi 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 ChengDu Hi Tech Development are associated (or correlated) with Guangxi Wuzhou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangxi Wuzhou Commu has no effect on the direction of ChengDu Hi i.e., ChengDu Hi and Guangxi Wuzhou go up and down completely randomly.

Pair Corralation between ChengDu Hi and Guangxi Wuzhou

Assuming the 90 days trading horizon ChengDu Hi Tech Development is expected to under-perform the Guangxi Wuzhou. But the stock apears to be less risky and, when comparing its historical volatility, ChengDu Hi Tech Development is 1.49 times less risky than Guangxi Wuzhou. The stock trades about -0.18 of its potential returns per unit of risk. The Guangxi Wuzhou Communications is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  406.00  in Guangxi Wuzhou Communications on October 8, 2024 and sell it today you would earn a total of  73.00  from holding Guangxi Wuzhou Communications or generate 17.98% return on investment over 90 days.

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

ChengDu Hi Tech Development  vs.  Guangxi Wuzhou Communications

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChengDu Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ChengDu Hi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangxi Wuzhou Commu

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with ChengDu Hi and Guangxi Wuzhou

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

The idea behind ChengDu Hi Tech Development and Guangxi Wuzhou Communications 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 Stocks Directory module to find actively traded stocks across global markets.