Correlation Between Guangzhou Haozhi and China Sports

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

By analyzing existing cross correlation between Guangzhou Haozhi Industrial and China Sports Industry, you can compare the effects of market volatilities on Guangzhou Haozhi and China Sports 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 Haozhi with a short position of China Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Haozhi and China Sports.

Diversification Opportunities for Guangzhou Haozhi and China Sports

0.8

Correlation Coefficient

Guangzhou Haozhi  China Sports

Very poor diversification

The 3 months correlation between Guangzhou and China is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Haozhi Industrial and China Sports Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Sports Industry and Guangzhou Haozhi 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 Haozhi Industrial are associated (or correlated) with China Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Sports Industry has no effect on the direction of Guangzhou Haozhi i.e., Guangzhou Haozhi and China Sports go up and down completely randomly.

Pair Corralation between Guangzhou Haozhi and China Sports

Assuming the 90 days trading horizon Guangzhou Haozhi Industrial is expected to generate 1.72 times more return on investment than China Sports. However, Guangzhou Haozhi is 1.72 times more volatile than China Sports Industry. It trades about 0.03 of its potential returns per unit of risk. China Sports Industry is currently generating about 0.02 per unit of risk. If you would invest  1,599  in Guangzhou Haozhi Industrial on October 9, 2024 and sell it today you would earn a total of  166.00  from holding Guangzhou Haozhi Industrial or generate 10.38% return on investment over 90 days.

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

Guangzhou Haozhi Industrial  vs.  China Sports Industry

Guangzhou Haozhi Ind

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Haozhi Industrial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Haozhi sustained solid returns over the last few months and may actually be approaching a breakup point.

China Sports Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Sports Industry has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Sports 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 Haozhi and China Sports

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

The idea behind Guangzhou Haozhi Industrial and China Sports Industry 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.