Correlation Between Hangzhou Zhongya and Guangzhou Restaurants

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

By analyzing existing cross correlation between Hangzhou Zhongya Machinery and Guangzhou Restaurants Group, you can compare the effects of market volatilities on Hangzhou Zhongya and Guangzhou Restaurants 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 Hangzhou Zhongya with a short position of Guangzhou Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hangzhou Zhongya and Guangzhou Restaurants.

Diversification Opportunities for Hangzhou Zhongya and Guangzhou Restaurants

0.69

Correlation Coefficient

Hangzhou Zhongya  Guangzhou Restaurants

Poor diversification

The 3 months correlation between Hangzhou and Guangzhou is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Hangzhou Zhongya Machinery and Guangzhou Restaurants Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Restaurants and Hangzhou Zhongya 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 Hangzhou Zhongya Machinery are associated (or correlated) with Guangzhou Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Restaurants has no effect on the direction of Hangzhou Zhongya i.e., Hangzhou Zhongya and Guangzhou Restaurants go up and down completely randomly.

Pair Corralation between Hangzhou Zhongya and Guangzhou Restaurants

Assuming the 90 days trading horizon Hangzhou Zhongya Machinery is expected to generate 1.64 times more return on investment than Guangzhou Restaurants. However, Hangzhou Zhongya is 1.64 times more volatile than Guangzhou Restaurants Group. It trades about 0.01 of its potential returns per unit of risk. Guangzhou Restaurants Group is currently generating about -0.04 per unit of risk. If you would invest  701.00  in Hangzhou Zhongya Machinery on October 4, 2024 and sell it today you would lose (20.00) from holding Hangzhou Zhongya Machinery or give up 2.85% of portfolio value over 90 days.

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

Hangzhou Zhongya Machinery  vs.  Guangzhou Restaurants Group

Hangzhou Zhongya Mac

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hangzhou Zhongya Machinery 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.

Guangzhou Restaurants

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hangzhou Zhongya and Guangzhou Restaurants

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

The idea behind Hangzhou Zhongya Machinery and Guangzhou Restaurants Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.