Correlation Between Guangzhou Zhujiang and Suzhou Mingzhi

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

Diversification Opportunities for Guangzhou Zhujiang and Suzhou Mingzhi

-0.34

Correlation Coefficient

Guangzhou Zhujiang  Suzhou Mingzhi

Very good diversification

The 3 months correlation between Guangzhou and Suzhou is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Zhujiang Brewery and Suzhou Mingzhi Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Mingzhi Technology 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 Suzhou Mingzhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Mingzhi Technology has no effect on the direction of Guangzhou Zhujiang i.e., Guangzhou Zhujiang and Suzhou Mingzhi go up and down completely randomly.

Pair Corralation between Guangzhou Zhujiang and Suzhou Mingzhi

Assuming the 90 days trading horizon Guangzhou Zhujiang Brewery is expected to under-perform the Suzhou Mingzhi. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Zhujiang Brewery is 1.71 times less risky than Suzhou Mingzhi. The stock trades about -0.01 of its potential returns per unit of risk. The Suzhou Mingzhi Technology is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,732  in Suzhou Mingzhi Technology on October 21, 2024 and sell it today you would lose (2.00) from holding Suzhou Mingzhi Technology or give up 0.12% of portfolio value over 90 days.

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

Guangzhou Zhujiang Brewery  vs.  Suzhou Mingzhi Technology

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.

Suzhou Mingzhi Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Mingzhi Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Suzhou Mingzhi 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 Suzhou Mingzhi

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

The idea behind Guangzhou Zhujiang Brewery and Suzhou Mingzhi 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.