Correlation Between Guizhou Chanhen and GEM

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

By analyzing existing cross correlation between Guizhou Chanhen Chemical and GEM Co, you can compare the effects of market volatilities on Guizhou Chanhen and GEM 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 Guizhou Chanhen with a short position of GEM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guizhou Chanhen and GEM.

Diversification Opportunities for Guizhou Chanhen and GEM

0.45

Correlation Coefficient

Guizhou Chanhen  GEM

Very weak diversification

The 3 months correlation between Guizhou and GEM is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Guizhou Chanhen Chemical and GEM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEM Co and Guizhou Chanhen 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 Guizhou Chanhen Chemical are associated (or correlated) with GEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEM Co has no effect on the direction of Guizhou Chanhen i.e., Guizhou Chanhen and GEM go up and down completely randomly.

Pair Corralation between Guizhou Chanhen and GEM

Assuming the 90 days trading horizon Guizhou Chanhen Chemical is expected to generate 1.2 times more return on investment than GEM. However, Guizhou Chanhen is 1.2 times more volatile than GEM Co. It trades about 0.09 of its potential returns per unit of risk. GEM Co is currently generating about -0.04 per unit of risk. If you would invest  2,100  in Guizhou Chanhen Chemical on September 30, 2024 and sell it today you would earn a total of  314.00  from holding Guizhou Chanhen Chemical or generate 14.95% return on investment over 90 days.

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

Guizhou Chanhen Chemical  vs.  GEM Co

Guizhou Chanhen Chemical

Risk-Adjusted Performance

7 of 100

OK

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

GEM Co

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guizhou Chanhen and GEM

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

The idea behind Guizhou Chanhen Chemical and GEM Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.