Correlation Between Guangzhou Boji and Hubei Dinglong

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

By analyzing existing cross correlation between Guangzhou Boji Medical and Hubei Dinglong Chemical, you can compare the effects of market volatilities on Guangzhou Boji and Hubei Dinglong 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 Boji with a short position of Hubei Dinglong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Boji and Hubei Dinglong.

Diversification Opportunities for Guangzhou Boji and Hubei Dinglong

0.63

Correlation Coefficient

Guangzhou Boji  Hubei Dinglong

Poor diversification

The 3 months correlation between Guangzhou and Hubei is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Boji Medical and Hubei Dinglong Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Dinglong Chemical and Guangzhou Boji 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 Boji Medical are associated (or correlated) with Hubei Dinglong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Dinglong Chemical has no effect on the direction of Guangzhou Boji i.e., Guangzhou Boji and Hubei Dinglong go up and down completely randomly.

Pair Corralation between Guangzhou Boji and Hubei Dinglong

Assuming the 90 days trading horizon Guangzhou Boji is expected to generate 1.53 times less return on investment than Hubei Dinglong. In addition to that, Guangzhou Boji is 1.21 times more volatile than Hubei Dinglong Chemical. It trades about 0.02 of its total potential returns per unit of risk. Hubei Dinglong Chemical is currently generating about 0.04 per unit of volatility. If you would invest  2,755  in Hubei Dinglong Chemical on December 2, 2024 and sell it today you would earn a total of  107.00  from holding Hubei Dinglong Chemical or generate 3.88% return on investment over 90 days.

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

Guangzhou Boji Medical  vs.  Hubei Dinglong Chemical

Guangzhou Boji Medical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Boji Medical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Boji is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hubei Dinglong Chemical

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Guangzhou Boji and Hubei Dinglong

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

The idea behind Guangzhou Boji Medical and Hubei Dinglong Chemical 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.