Correlation Between Guangzhou KDT and Kangxin New

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

Diversification Opportunities for Guangzhou KDT and Kangxin New

0.66

Correlation Coefficient

Guangzhou KDT  Kangxin New

Poor diversification

The 3 months correlation between Guangzhou and Kangxin is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou KDT Machinery and Kangxin New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kangxin New Materials 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 Kangxin New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kangxin New Materials has no effect on the direction of Guangzhou KDT i.e., Guangzhou KDT and Kangxin New go up and down completely randomly.

Pair Corralation between Guangzhou KDT and Kangxin New

Assuming the 90 days trading horizon Guangzhou KDT Machinery is expected to generate 0.49 times more return on investment than Kangxin New. However, Guangzhou KDT Machinery is 2.05 times less risky than Kangxin New. It trades about -0.4 of its potential returns per unit of risk. Kangxin New Materials is currently generating about -0.44 per unit of risk. If you would invest  1,859  in Guangzhou KDT Machinery on October 11, 2024 and sell it today you would lose (238.00) from holding Guangzhou KDT Machinery or give up 12.8% 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.  Kangxin New Materials

Guangzhou KDT Machinery

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou KDT Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Kangxin New Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kangxin New Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kangxin New may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Guangzhou KDT and Kangxin New

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

The idea behind Guangzhou KDT Machinery and Kangxin New Materials 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.