Correlation Between Central China and Gemdale Corp

Can any of the company-specific risk be diversified away by investing in both Central China and Gemdale Corp 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 Central China and Gemdale Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central China Land and Gemdale Corp, you can compare the effects of market volatilities on Central China and Gemdale Corp 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 Central China with a short position of Gemdale Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central China and Gemdale Corp.

Diversification Opportunities for Central China and Gemdale Corp

-0.08

Correlation Coefficient

Central China  Gemdale Corp

Good diversification

The 3 months correlation between Central and Gemdale is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Central China Land and Gemdale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gemdale Corp and Central China 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 Central China Land are associated (or correlated) with Gemdale Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gemdale Corp has no effect on the direction of Central China i.e., Central China and Gemdale Corp go up and down completely randomly.

Pair Corralation between Central China and Gemdale Corp

Assuming the 90 days trading horizon Central China Land is expected to under-perform the Gemdale Corp. But the stock apears to be less risky and, when comparing its historical volatility, Central China Land is 1.96 times less risky than Gemdale Corp. The stock trades about -0.21 of its potential returns per unit of risk. The Gemdale Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  458.00  in Gemdale Corp on October 24, 2024 and sell it today you would earn a total of  27.00  from holding Gemdale Corp or generate 5.9% return on investment over 90 days.

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

Central China Land  vs.  Gemdale Corp

Central China Land

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gemdale Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gemdale Corp 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.

Pair Trading with Central China and Gemdale Corp

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

The idea behind Central China Land and Gemdale Corp 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.