Correlation Between Weichai Heavy and Guangdong Advertising

Can any of the company-specific risk be diversified away by investing in both Weichai Heavy and Guangdong Advertising 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 Weichai Heavy and Guangdong Advertising into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Weichai Heavy Machinery and Guangdong Advertising Co, you can compare the effects of market volatilities on Weichai Heavy and Guangdong Advertising 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 Weichai Heavy with a short position of Guangdong Advertising. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weichai Heavy and Guangdong Advertising.

Diversification Opportunities for Weichai Heavy and Guangdong Advertising

0.89

Correlation Coefficient

Weichai Heavy  Guangdong Advertising

Very poor diversification

The 3 months correlation between Weichai and Guangdong is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Heavy Machinery and Guangdong Advertising Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Advertising and Weichai Heavy 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 Weichai Heavy Machinery are associated (or correlated) with Guangdong Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Advertising has no effect on the direction of Weichai Heavy i.e., Weichai Heavy and Guangdong Advertising go up and down completely randomly.

Pair Corralation between Weichai Heavy and Guangdong Advertising

Assuming the 90 days trading horizon Weichai Heavy is expected to generate 1.66 times less return on investment than Guangdong Advertising. But when comparing it to its historical volatility, Weichai Heavy Machinery is 1.2 times less risky than Guangdong Advertising. It trades about 0.13 of its potential returns per unit of risk. Guangdong Advertising Co is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  748.00  in Guangdong Advertising Co on September 12, 2024 and sell it today you would earn a total of  171.00  from holding Guangdong Advertising Co or generate 22.86% return on investment over 90 days.

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

Weichai Heavy Machinery  vs.  Guangdong Advertising Co

Weichai Heavy Machinery

Risk-Adjusted Performance

13 of 100

Good

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

Guangdong Advertising

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Advertising Co are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Advertising sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Weichai Heavy and Guangdong Advertising

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

The idea behind Weichai Heavy Machinery and Guangdong Advertising Co 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.