Correlation Between Zhejiang Construction and Guangzhou Dongfang

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

By analyzing existing cross correlation between Zhejiang Construction Investment and Guangzhou Dongfang Hotel, you can compare the effects of market volatilities on Zhejiang Construction and Guangzhou Dongfang 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 Zhejiang Construction with a short position of Guangzhou Dongfang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Construction and Guangzhou Dongfang.

Diversification Opportunities for Zhejiang Construction and Guangzhou Dongfang

0.69

Correlation Coefficient

Zhejiang Construction  Guangzhou Dongfang

Poor diversification

The 3 months correlation between Zhejiang and Guangzhou is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and Guangzhou Dongfang Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Dongfang Hotel and Zhejiang Construction 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 Zhejiang Construction Investment are associated (or correlated) with Guangzhou Dongfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Dongfang Hotel has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between Zhejiang Construction and Guangzhou Dongfang

Assuming the 90 days trading horizon Zhejiang Construction Investment is expected to under-perform the Guangzhou Dongfang. In addition to that, Zhejiang Construction is 1.28 times more volatile than Guangzhou Dongfang Hotel. It trades about -0.03 of its total potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.03 per unit of volatility. If you would invest  1,026  in Guangzhou Dongfang Hotel on December 27, 2024 and sell it today you would earn a total of  26.00  from holding Guangzhou Dongfang Hotel or generate 2.53% return on investment over 90 days.

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

Zhejiang Construction Investme  vs.  Guangzhou Dongfang Hotel

Zhejiang Construction

Risk-Adjusted Performance

Very Weak

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

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Dongfang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zhejiang Construction and Guangzhou Dongfang

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

The idea behind Zhejiang Construction Investment and Guangzhou Dongfang Hotel 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.