Correlation Between Guangdong Electric and Industrial

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

By analyzing existing cross correlation between Guangdong Electric Power and Industrial and Commercial, you can compare the effects of market volatilities on Guangdong Electric and Industrial 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 Guangdong Electric with a short position of Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Electric and Industrial.

Diversification Opportunities for Guangdong Electric and Industrial

-0.66

Correlation Coefficient

Guangdong Electric  Industrial

Excellent diversification

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

Pair Corralation between Guangdong Electric and Industrial

Assuming the 90 days trading horizon Guangdong Electric Power is expected to under-perform the Industrial. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Electric Power is 2.02 times less risky than Industrial. The stock trades about -0.16 of its potential returns per unit of risk. The Industrial and Commercial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  647.00  in Industrial and Commercial on October 13, 2024 and sell it today you would earn a total of  20.00  from holding Industrial and Commercial or generate 3.09% return on investment over 90 days.

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

Guangdong Electric Power  vs.  Industrial and Commercial

Guangdong Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

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

Industrial and Commercial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Industrial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guangdong Electric and Industrial

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

The idea behind Guangdong Electric Power and Industrial and Commercial 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..