Correlation Between Guangdong Transtek and Suzhou Oriental

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

Diversification Opportunities for Guangdong Transtek and Suzhou Oriental

0.45

Correlation Coefficient

Guangdong Transtek  Suzhou Oriental

Very weak diversification

The 3 months correlation between Guangdong and Suzhou is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Transtek Medical and Suzhou Oriental Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Oriental Semi 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 Suzhou Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Oriental Semi has no effect on the direction of Guangdong Transtek i.e., Guangdong Transtek and Suzhou Oriental go up and down completely randomly.

Pair Corralation between Guangdong Transtek and Suzhou Oriental

Assuming the 90 days trading horizon Guangdong Transtek Medical is expected to generate 1.5 times more return on investment than Suzhou Oriental. However, Guangdong Transtek is 1.5 times more volatile than Suzhou Oriental Semiconductor. It trades about -0.02 of its potential returns per unit of risk. Suzhou Oriental Semiconductor is currently generating about -0.11 per unit of risk. If you would invest  1,420  in Guangdong Transtek Medical on October 26, 2024 and sell it today you would lose (149.00) from holding Guangdong Transtek Medical or give up 10.49% of portfolio value over 90 days.

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

Guangdong Transtek Medical  vs.  Suzhou Oriental Semiconductor

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.

Suzhou Oriental Semi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suzhou Oriental Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Guangdong Transtek and Suzhou Oriental

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

The idea behind Guangdong Transtek Medical and Suzhou Oriental Semiconductor 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.