Correlation Between Guangdong Transtek and Jiangsu Rongtai

Can any of the company-specific risk be diversified away by investing in both Guangdong Transtek and Jiangsu Rongtai 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 Jiangsu Rongtai 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 Jiangsu Rongtai Industry, you can compare the effects of market volatilities on Guangdong Transtek and Jiangsu Rongtai 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 Jiangsu Rongtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Transtek and Jiangsu Rongtai.

Diversification Opportunities for Guangdong Transtek and Jiangsu Rongtai

0.2

Correlation Coefficient

Guangdong Transtek  Jiangsu Rongtai

Modest diversification

The 3 months correlation between Guangdong and Jiangsu is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Transtek Medical and Jiangsu Rongtai Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Rongtai Industry 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 Jiangsu Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Rongtai Industry has no effect on the direction of Guangdong Transtek i.e., Guangdong Transtek and Jiangsu Rongtai go up and down completely randomly.

Pair Corralation between Guangdong Transtek and Jiangsu Rongtai

Assuming the 90 days trading horizon Guangdong Transtek Medical is expected to generate 1.19 times more return on investment than Jiangsu Rongtai. However, Guangdong Transtek is 1.19 times more volatile than Jiangsu Rongtai Industry. It trades about 0.03 of its potential returns per unit of risk. Jiangsu Rongtai Industry is currently generating about -0.01 per unit of risk. If you would invest  972.00  in Guangdong Transtek Medical on October 26, 2024 and sell it today you would earn a total of  329.00  from holding Guangdong Transtek Medical or generate 33.85% return on investment over 90 days.

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

Guangdong Transtek Medical  vs.  Jiangsu Rongtai Industry

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.

Jiangsu Rongtai Industry

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Rongtai Industry are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Rongtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Transtek and Jiangsu Rongtai

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

The idea behind Guangdong Transtek Medical and Jiangsu Rongtai 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.