Correlation Between Guangdong Electric and Touchstone International

Can any of the company-specific risk be diversified away by investing in both Guangdong Electric and Touchstone International 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 Touchstone International 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 Touchstone International Medical, you can compare the effects of market volatilities on Guangdong Electric and Touchstone International 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 Touchstone International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Electric and Touchstone International.

Diversification Opportunities for Guangdong Electric and Touchstone International

0.12

Correlation Coefficient

Guangdong Electric  Touchstone International

Average diversification

The 3 months correlation between Guangdong and Touchstone is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Electric Power and Touchstone International Medic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone International 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 Touchstone International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone International has no effect on the direction of Guangdong Electric i.e., Guangdong Electric and Touchstone International go up and down completely randomly.

Pair Corralation between Guangdong Electric and Touchstone International

Assuming the 90 days trading horizon Guangdong Electric Power is expected to under-perform the Touchstone International. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Electric Power is 3.35 times less risky than Touchstone International. The stock trades about -0.16 of its potential returns per unit of risk. The Touchstone International Medical is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,738  in Touchstone International Medical on October 13, 2024 and sell it today you would lose (32.00) from holding Touchstone International Medical or give up 1.84% of portfolio value over 90 days.

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

Guangdong Electric Power  vs.  Touchstone International Medic

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.

Touchstone International

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Guangdong Electric Power and Touchstone International Medical 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.