Correlation Between Guangdong Wens and Tianjin Capital

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

By analyzing existing cross correlation between Guangdong Wens Foodstuff and Tianjin Capital Environmental, you can compare the effects of market volatilities on Guangdong Wens and Tianjin Capital 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 Wens with a short position of Tianjin Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Wens and Tianjin Capital.

Diversification Opportunities for Guangdong Wens and Tianjin Capital

0.95

Correlation Coefficient

Guangdong Wens  Tianjin Capital

Almost no diversification

The 3 months correlation between Guangdong and Tianjin is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Wens Foodstuff and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi and Guangdong Wens 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 Wens Foodstuff are associated (or correlated) with Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of Guangdong Wens i.e., Guangdong Wens and Tianjin Capital go up and down completely randomly.

Pair Corralation between Guangdong Wens and Tianjin Capital

Assuming the 90 days trading horizon Guangdong Wens is expected to generate 3.68 times less return on investment than Tianjin Capital. In addition to that, Guangdong Wens is 1.35 times more volatile than Tianjin Capital Environmental. It trades about 0.02 of its total potential returns per unit of risk. Tianjin Capital Environmental is currently generating about 0.1 per unit of volatility. If you would invest  477.00  in Tianjin Capital Environmental on December 10, 2024 and sell it today you would earn a total of  102.00  from holding Tianjin Capital Environmental or generate 21.38% return on investment over 90 days.

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

Guangdong Wens Foodstuff  vs.  Tianjin Capital Environmental

Guangdong Wens Foodstuff

Risk-Adjusted Performance

Very Weak

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

Tianjin Capital Envi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianjin Capital Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Guangdong Wens and Tianjin Capital

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

The idea behind Guangdong Wens Foodstuff and Tianjin Capital Environmental 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.