Correlation Between Guangzhou KDT and Elite Color

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

By analyzing existing cross correlation between Guangzhou KDT Machinery and Elite Color Environmental, you can compare the effects of market volatilities on Guangzhou KDT and Elite Color 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 KDT with a short position of Elite Color. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou KDT and Elite Color.

Diversification Opportunities for Guangzhou KDT and Elite Color

0.78

Correlation Coefficient

Guangzhou KDT  Elite Color

Poor diversification

The 3 months correlation between Guangzhou and Elite is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou KDT Machinery and Elite Color Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Color Environmental and Guangzhou KDT 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 KDT Machinery are associated (or correlated) with Elite Color. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Color Environmental has no effect on the direction of Guangzhou KDT i.e., Guangzhou KDT and Elite Color go up and down completely randomly.

Pair Corralation between Guangzhou KDT and Elite Color

Assuming the 90 days trading horizon Guangzhou KDT Machinery is expected to under-perform the Elite Color. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou KDT Machinery is 1.72 times less risky than Elite Color. The stock trades about -0.47 of its potential returns per unit of risk. The Elite Color Environmental is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  672.00  in Elite Color Environmental on October 12, 2024 and sell it today you would lose (75.00) from holding Elite Color Environmental or give up 11.16% of portfolio value over 90 days.

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

Guangzhou KDT Machinery  vs.  Elite Color Environmental

Guangzhou KDT Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

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

Elite Color Environmental

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Color Environmental are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elite Color may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Guangzhou KDT and Elite Color

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

The idea behind Guangzhou KDT Machinery and Elite Color Environmental 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.