Correlation Between Guangdong Zhongsheng and Gan Yuan

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

By analyzing existing cross correlation between Guangdong Zhongsheng Pharmaceutical and Gan Yuan Foods, you can compare the effects of market volatilities on Guangdong Zhongsheng and Gan Yuan 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 Guangdong Zhongsheng with a short position of Gan Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Zhongsheng and Gan Yuan.

Diversification Opportunities for Guangdong Zhongsheng and Gan Yuan

0.54

Correlation Coefficient

Guangdong Zhongsheng  Gan Yuan

Very weak diversification

The 3 months correlation between Guangdong and Gan is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Zhongsheng Pharmaceu and Gan Yuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gan Yuan Foods and Guangdong Zhongsheng 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 Guangdong Zhongsheng Pharmaceutical are associated (or correlated) with Gan Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gan Yuan Foods has no effect on the direction of Guangdong Zhongsheng i.e., Guangdong Zhongsheng and Gan Yuan go up and down completely randomly.

Pair Corralation between Guangdong Zhongsheng and Gan Yuan

Assuming the 90 days trading horizon Guangdong Zhongsheng Pharmaceutical is expected to generate 0.71 times more return on investment than Gan Yuan. However, Guangdong Zhongsheng Pharmaceutical is 1.4 times less risky than Gan Yuan. It trades about -0.06 of its potential returns per unit of risk. Gan Yuan Foods is currently generating about -0.12 per unit of risk. If you would invest  1,205  in Guangdong Zhongsheng Pharmaceutical on December 25, 2024 and sell it today you would lose (98.00) from holding Guangdong Zhongsheng Pharmaceutical or give up 8.13% of portfolio value over 90 days.

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

Guangdong Zhongsheng Pharmaceu  vs.  Gan Yuan Foods

Guangdong Zhongsheng

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Zhongsheng Pharmaceutical 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.

Gan Yuan Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gan Yuan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Guangdong Zhongsheng and Gan Yuan

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

The idea behind Guangdong Zhongsheng Pharmaceutical and Gan Yuan Foods 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.