Correlation Between Guangzhou Zhujiang and China Building

Can any of the company-specific risk be diversified away by investing in both Guangzhou Zhujiang and China Building 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 China Building 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 China Building Material, you can compare the effects of market volatilities on Guangzhou Zhujiang and China Building 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 China Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Zhujiang and China Building.

Diversification Opportunities for Guangzhou Zhujiang and China Building

0.21

Correlation Coefficient

Guangzhou Zhujiang  China Building

Modest diversification

The 3 months correlation between Guangzhou and China is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Zhujiang Brewery and China Building Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Building Material 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 China Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Building Material has no effect on the direction of Guangzhou Zhujiang i.e., Guangzhou Zhujiang and China Building go up and down completely randomly.

Pair Corralation between Guangzhou Zhujiang and China Building

Assuming the 90 days trading horizon Guangzhou Zhujiang Brewery is expected to generate 0.6 times more return on investment than China Building. However, Guangzhou Zhujiang Brewery is 1.68 times less risky than China Building. It trades about 0.01 of its potential returns per unit of risk. China Building Material is currently generating about -0.01 per unit of risk. If you would invest  965.00  in Guangzhou Zhujiang Brewery on October 7, 2024 and sell it today you would lose (2.00) from holding Guangzhou Zhujiang Brewery or give up 0.21% of portfolio value over 90 days.

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

Guangzhou Zhujiang Brewery  vs.  China Building Material

Guangzhou Zhujiang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Zhujiang Brewery has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

China Building Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Building Material has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Building 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 China Building

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

The idea behind Guangzhou Zhujiang Brewery and China Building Material 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.