Correlation Between Cofco Biochemical and Guangdong Cellwise

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

By analyzing existing cross correlation between Cofco Biochemical Anhui and Guangdong Cellwise Microelectronics, you can compare the effects of market volatilities on Cofco Biochemical and Guangdong Cellwise 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 Cofco Biochemical with a short position of Guangdong Cellwise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cofco Biochemical and Guangdong Cellwise.

Diversification Opportunities for Cofco Biochemical and Guangdong Cellwise

0.68

Correlation Coefficient

Cofco Biochemical  Guangdong Cellwise

Poor diversification

The 3 months correlation between Cofco and Guangdong is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Cofco Biochemical Anhui and Guangdong Cellwise Microelectr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Cellwise and Cofco Biochemical 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 Cofco Biochemical Anhui are associated (or correlated) with Guangdong Cellwise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Cellwise has no effect on the direction of Cofco Biochemical i.e., Cofco Biochemical and Guangdong Cellwise go up and down completely randomly.

Pair Corralation between Cofco Biochemical and Guangdong Cellwise

Assuming the 90 days trading horizon Cofco Biochemical is expected to generate 10.52 times less return on investment than Guangdong Cellwise. But when comparing it to its historical volatility, Cofco Biochemical Anhui is 2.02 times less risky than Guangdong Cellwise. It trades about 0.02 of its potential returns per unit of risk. Guangdong Cellwise Microelectronics is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,007  in Guangdong Cellwise Microelectronics on October 2, 2024 and sell it today you would earn a total of  3,216  from holding Guangdong Cellwise Microelectronics or generate 160.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.54%
Values	Daily Returns

Cofco Biochemical Anhui  vs.  Guangdong Cellwise Microelectr

Cofco Biochemical Anhui

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangdong Cellwise

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Cellwise Microelectronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Cellwise sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cofco Biochemical and Guangdong Cellwise

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

The idea behind Cofco Biochemical Anhui and Guangdong Cellwise Microelectronics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.