Correlation Between Guangzhou Zhujiang and Dongguan Chitwing

Can any of the company-specific risk be diversified away by investing in both Guangzhou Zhujiang and Dongguan Chitwing 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 Guangzhou Zhujiang and Dongguan Chitwing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangzhou Zhujiang Brewery and Dongguan Chitwing Technology, you can compare the effects of market volatilities on Guangzhou Zhujiang and Dongguan Chitwing 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 Guangzhou Zhujiang with a short position of Dongguan Chitwing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Zhujiang and Dongguan Chitwing.

Diversification Opportunities for Guangzhou Zhujiang and Dongguan Chitwing

-0.31

Correlation Coefficient

Guangzhou Zhujiang  Dongguan Chitwing

Very good diversification

The 3 months correlation between Guangzhou and Dongguan is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Zhujiang Brewery and Dongguan Chitwing Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongguan Chitwing and Guangzhou Zhujiang 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 Guangzhou Zhujiang Brewery are associated (or correlated) with Dongguan Chitwing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongguan Chitwing has no effect on the direction of Guangzhou Zhujiang i.e., Guangzhou Zhujiang and Dongguan Chitwing go up and down completely randomly.

Pair Corralation between Guangzhou Zhujiang and Dongguan Chitwing

Assuming the 90 days trading horizon Guangzhou Zhujiang Brewery is expected to generate 0.53 times more return on investment than Dongguan Chitwing. However, Guangzhou Zhujiang Brewery is 1.89 times less risky than Dongguan Chitwing. It trades about 0.05 of its potential returns per unit of risk. Dongguan Chitwing Technology is currently generating about 0.0 per unit of risk. If you would invest  914.00  in Guangzhou Zhujiang Brewery on November 29, 2024 and sell it today you would earn a total of  31.00  from holding Guangzhou Zhujiang Brewery or generate 3.39% return on investment over 90 days.

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

Guangzhou Zhujiang Brewery  vs.  Dongguan Chitwing Technology

Guangzhou Zhujiang

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Zhujiang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dongguan Chitwing

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Guangzhou Zhujiang and Dongguan Chitwing

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

The idea behind Guangzhou Zhujiang Brewery and Dongguan Chitwing Technology 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.