Correlation Between Hangzhou Guotai and Anhui Gujing

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

By analyzing existing cross correlation between Hangzhou Guotai Environmental and Anhui Gujing Distillery, you can compare the effects of market volatilities on Hangzhou Guotai and Anhui Gujing 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 Guotai with a short position of Anhui Gujing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hangzhou Guotai and Anhui Gujing.

Diversification Opportunities for Hangzhou Guotai and Anhui Gujing

0.77

Correlation Coefficient

Hangzhou Guotai  Anhui Gujing

Poor diversification

The 3 months correlation between Hangzhou and Anhui is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hangzhou Guotai Environmental and Anhui Gujing Distillery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Gujing Distillery and Hangzhou Guotai 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 Guotai Environmental are associated (or correlated) with Anhui Gujing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Gujing Distillery has no effect on the direction of Hangzhou Guotai i.e., Hangzhou Guotai and Anhui Gujing go up and down completely randomly.

Pair Corralation between Hangzhou Guotai and Anhui Gujing

Assuming the 90 days trading horizon Hangzhou Guotai Environmental is expected to generate 1.49 times more return on investment than Anhui Gujing. However, Hangzhou Guotai is 1.49 times more volatile than Anhui Gujing Distillery. It trades about 0.0 of its potential returns per unit of risk. Anhui Gujing Distillery is currently generating about -0.04 per unit of risk. If you would invest  3,680  in Hangzhou Guotai Environmental on September 28, 2024 and sell it today you would lose (738.00) from holding Hangzhou Guotai Environmental or give up 20.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.28%
Values	Daily Returns

Hangzhou Guotai Environmental  vs.  Anhui Gujing Distillery

Hangzhou Guotai Envi

Risk-Adjusted Performance

0 of 100

Very Weak

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

Anhui Gujing Distillery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anhui Gujing Distillery 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hangzhou Guotai and Anhui Gujing

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

The idea behind Hangzhou Guotai Environmental and Anhui Gujing Distillery 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.