Correlation Between Zhejiang Construction and Guangzhou Zhujiang

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

Diversification Opportunities for Zhejiang Construction and Guangzhou Zhujiang

0.43

Correlation Coefficient

Zhejiang Construction  Guangzhou Zhujiang

Very weak diversification

The 3 months correlation between Zhejiang and Guangzhou is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and Guangzhou Zhujiang Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Zhujiang 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 Zhujiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Zhujiang has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and Guangzhou Zhujiang go up and down completely randomly.

Pair Corralation between Zhejiang Construction and Guangzhou Zhujiang

Assuming the 90 days trading horizon Zhejiang Construction Investment is expected to under-perform the Guangzhou Zhujiang. In addition to that, Zhejiang Construction is 1.75 times more volatile than Guangzhou Zhujiang Brewery. It trades about -0.03 of its total potential returns per unit of risk. Guangzhou Zhujiang Brewery is currently generating about 0.04 per unit of volatility. If you would invest  775.00  in Guangzhou Zhujiang Brewery on September 14, 2024 and sell it today you would earn a total of  204.00  from holding Guangzhou Zhujiang Brewery or generate 26.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Zhejiang Construction Investme  vs.  Guangzhou Zhujiang Brewery

Zhejiang Construction

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Construction Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Zhujiang

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Zhujiang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Construction and Guangzhou Zhujiang

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

The idea behind Zhejiang Construction Investment and Guangzhou Zhujiang Brewery 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.