Correlation Between Guangdong Zhongsheng and Kunshan Guoli

Can any of the company-specific risk be diversified away by investing in both Guangdong Zhongsheng and Kunshan Guoli 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 Kunshan Guoli 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 Kunshan Guoli Electronic, you can compare the effects of market volatilities on Guangdong Zhongsheng and Kunshan Guoli 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 Kunshan Guoli. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Zhongsheng and Kunshan Guoli.

Diversification Opportunities for Guangdong Zhongsheng and Kunshan Guoli

0.83

Correlation Coefficient

Guangdong Zhongsheng  Kunshan Guoli

Very poor diversification

The 3 months correlation between Guangdong and Kunshan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Zhongsheng Pharmaceu and Kunshan Guoli Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunshan Guoli Electronic 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 Kunshan Guoli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunshan Guoli Electronic has no effect on the direction of Guangdong Zhongsheng i.e., Guangdong Zhongsheng and Kunshan Guoli go up and down completely randomly.

Pair Corralation between Guangdong Zhongsheng and Kunshan Guoli

Assuming the 90 days trading horizon Guangdong Zhongsheng Pharmaceutical is expected to under-perform the Kunshan Guoli. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Zhongsheng Pharmaceutical is 1.22 times less risky than Kunshan Guoli. The stock trades about -0.04 of its potential returns per unit of risk. The Kunshan Guoli Electronic is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  6,328  in Kunshan Guoli Electronic on October 24, 2024 and sell it today you would lose (2,653) from holding Kunshan Guoli Electronic or give up 41.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

Guangdong Zhongsheng Pharmaceu  vs.  Kunshan Guoli Electronic

Guangdong Zhongsheng

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Kunshan Guoli Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kunshan Guoli Electronic 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Guangdong Zhongsheng and Kunshan Guoli

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

The idea behind Guangdong Zhongsheng Pharmaceutical and Kunshan Guoli Electronic 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.