Correlation Between Guangdong Qunxing and Changchun Faway

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

By analyzing existing cross correlation between Guangdong Qunxing Toys and Changchun Faway Automobile, you can compare the effects of market volatilities on Guangdong Qunxing and Changchun Faway 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 Qunxing with a short position of Changchun Faway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Qunxing and Changchun Faway.

Diversification Opportunities for Guangdong Qunxing and Changchun Faway

0.79

Correlation Coefficient

Guangdong Qunxing  Changchun Faway

Poor diversification

The 3 months correlation between Guangdong and Changchun is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Qunxing Toys and Changchun Faway Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun Faway Auto and Guangdong Qunxing 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 Qunxing Toys are associated (or correlated) with Changchun Faway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun Faway Auto has no effect on the direction of Guangdong Qunxing i.e., Guangdong Qunxing and Changchun Faway go up and down completely randomly.

Pair Corralation between Guangdong Qunxing and Changchun Faway

Assuming the 90 days trading horizon Guangdong Qunxing Toys is expected to generate 2.47 times more return on investment than Changchun Faway. However, Guangdong Qunxing is 2.47 times more volatile than Changchun Faway Automobile. It trades about 0.19 of its potential returns per unit of risk. Changchun Faway Automobile is currently generating about -0.15 per unit of risk. If you would invest  603.00  in Guangdong Qunxing Toys on September 20, 2024 and sell it today you would earn a total of  105.00  from holding Guangdong Qunxing Toys or generate 17.41% return on investment over 90 days.

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

Guangdong Qunxing Toys  vs.  Changchun Faway Automobile

Guangdong Qunxing Toys

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Qunxing Toys are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Qunxing sustained solid returns over the last few months and may actually be approaching a breakup point.

Changchun Faway Auto

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun Faway Automobile are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun Faway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Qunxing and Changchun Faway

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

The idea behind Guangdong Qunxing Toys and Changchun Faway Automobile 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.