Correlation Between Guizhou Chanhen and Fujian Longzhou

Can any of the company-specific risk be diversified away by investing in both Guizhou Chanhen and Fujian Longzhou 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 Fujian Longzhou 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 Fujian Longzhou Transportation, you can compare the effects of market volatilities on Guizhou Chanhen and Fujian Longzhou 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 Fujian Longzhou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guizhou Chanhen and Fujian Longzhou.

Diversification Opportunities for Guizhou Chanhen and Fujian Longzhou

0.11

Correlation Coefficient

Guizhou Chanhen  Fujian Longzhou

Average diversification

The 3 months correlation between Guizhou and Fujian is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Guizhou Chanhen Chemical and Fujian Longzhou Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Longzhou Tran 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 Fujian Longzhou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Longzhou Tran has no effect on the direction of Guizhou Chanhen i.e., Guizhou Chanhen and Fujian Longzhou go up and down completely randomly.

Pair Corralation between Guizhou Chanhen and Fujian Longzhou

Assuming the 90 days trading horizon Guizhou Chanhen Chemical is expected to generate 0.59 times more return on investment than Fujian Longzhou. However, Guizhou Chanhen Chemical is 1.68 times less risky than Fujian Longzhou. It trades about -0.02 of its potential returns per unit of risk. Fujian Longzhou Transportation is currently generating about -0.01 per unit of risk. If you would invest  2,257  in Guizhou Chanhen Chemical on October 26, 2024 and sell it today you would lose (97.00) from holding Guizhou Chanhen Chemical or give up 4.3% of portfolio value over 90 days.

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

Guizhou Chanhen Chemical  vs.  Fujian Longzhou Transportation

Guizhou Chanhen Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fujian Longzhou Tran

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fujian Longzhou Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fujian Longzhou 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 Fujian Longzhou

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

The idea behind Guizhou Chanhen Chemical and Fujian Longzhou Transportation 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.