Correlation Between Guosheng Financial and Jiangsu GDK

Can any of the company-specific risk be diversified away by investing in both Guosheng Financial and Jiangsu GDK 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 Guosheng Financial and Jiangsu GDK into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guosheng Financial Holding and Jiangsu GDK Biotechnology, you can compare the effects of market volatilities on Guosheng Financial and Jiangsu GDK 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 Guosheng Financial with a short position of Jiangsu GDK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guosheng Financial and Jiangsu GDK.

Diversification Opportunities for Guosheng Financial and Jiangsu GDK

0.17

Correlation Coefficient

Guosheng Financial  Jiangsu GDK

Average diversification

The 3 months correlation between Guosheng and Jiangsu is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Guosheng Financial Holding and Jiangsu GDK Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu GDK Biotechnology and Guosheng Financial 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 Guosheng Financial Holding are associated (or correlated) with Jiangsu GDK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu GDK Biotechnology has no effect on the direction of Guosheng Financial i.e., Guosheng Financial and Jiangsu GDK go up and down completely randomly.

Pair Corralation between Guosheng Financial and Jiangsu GDK

Assuming the 90 days trading horizon Guosheng Financial Holding is expected to generate 1.47 times more return on investment than Jiangsu GDK. However, Guosheng Financial is 1.47 times more volatile than Jiangsu GDK Biotechnology. It trades about 0.04 of its potential returns per unit of risk. Jiangsu GDK Biotechnology is currently generating about -0.19 per unit of risk. If you would invest  1,357  in Guosheng Financial Holding on October 22, 2024 and sell it today you would earn a total of  19.00  from holding Guosheng Financial Holding or generate 1.4% return on investment over 90 days.

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

Guosheng Financial Holding  vs.  Jiangsu GDK Biotechnology

Guosheng Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guosheng Financial Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guosheng Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guosheng Financial and Jiangsu GDK

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

The idea behind Guosheng Financial Holding and Jiangsu GDK Biotechnology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.