Correlation Between China Longyuan and Guangxi Guiguan

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

By analyzing existing cross correlation between China Longyuan Power and Guangxi Guiguan Electric, you can compare the effects of market volatilities on China Longyuan and Guangxi Guiguan 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 China Longyuan with a short position of Guangxi Guiguan. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Longyuan and Guangxi Guiguan.

Diversification Opportunities for China Longyuan and Guangxi Guiguan

0.22

Correlation Coefficient

China Longyuan  Guangxi Guiguan

Modest diversification

The 3 months correlation between China and Guangxi is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Guangxi Guiguan Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangxi Guiguan Electric and China Longyuan 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 China Longyuan Power are associated (or correlated) with Guangxi Guiguan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangxi Guiguan Electric has no effect on the direction of China Longyuan i.e., China Longyuan and Guangxi Guiguan go up and down completely randomly.

Pair Corralation between China Longyuan and Guangxi Guiguan

Assuming the 90 days trading horizon China Longyuan Power is expected to generate 1.29 times more return on investment than Guangxi Guiguan. However, China Longyuan is 1.29 times more volatile than Guangxi Guiguan Electric. It trades about -0.02 of its potential returns per unit of risk. Guangxi Guiguan Electric is currently generating about -0.07 per unit of risk. If you would invest  1,603  in China Longyuan Power on December 30, 2024 and sell it today you would lose (33.00) from holding China Longyuan Power or give up 2.06% of portfolio value over 90 days.

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

China Longyuan Power  vs.  Guangxi Guiguan Electric

China Longyuan Power

Risk-Adjusted Performance

Very Weak

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

Guangxi Guiguan Electric

Risk-Adjusted Performance

Very Weak

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

Pair Trading with China Longyuan and Guangxi Guiguan

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

The idea behind China Longyuan Power and Guangxi Guiguan Electric 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.