Correlation Between Guangdong Transtek and ZJBC Information

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

By analyzing existing cross correlation between Guangdong Transtek Medical and ZJBC Information Technology, you can compare the effects of market volatilities on Guangdong Transtek and ZJBC Information 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 Transtek with a short position of ZJBC Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Transtek and ZJBC Information.

Diversification Opportunities for Guangdong Transtek and ZJBC Information

0.69

Correlation Coefficient

Guangdong Transtek  ZJBC Information

Poor diversification

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

Pair Corralation between Guangdong Transtek and ZJBC Information

Assuming the 90 days trading horizon Guangdong Transtek Medical is expected to generate 1.95 times more return on investment than ZJBC Information. However, Guangdong Transtek is 1.95 times more volatile than ZJBC Information Technology. It trades about -0.09 of its potential returns per unit of risk. ZJBC Information Technology is currently generating about -0.25 per unit of risk. If you would invest  1,452  in Guangdong Transtek Medical on October 10, 2024 and sell it today you would lose (214.00) from holding Guangdong Transtek Medical or give up 14.74% of portfolio value over 90 days.

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

Guangdong Transtek Medical  vs.  ZJBC Information Technology

Guangdong Transtek

Risk-Adjusted Performance

0 of 100

Very Weak

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

ZJBC Information Tec

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ZJBC Information Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ZJBC Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Transtek and ZJBC Information

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

The idea behind Guangdong Transtek Medical and ZJBC Information Technology 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.