Correlation Between Hangzhou Guotai and Guangdong Tianhe

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

Diversification Opportunities for Hangzhou Guotai and Guangdong Tianhe

0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Hangzhou and Guangdong is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Hangzhou Guotai Environmental and Guangdong Tianhe Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Tianhe Agr 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 Guangdong Tianhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Tianhe Agr has no effect on the direction of Hangzhou Guotai i.e., Hangzhou Guotai and Guangdong Tianhe go up and down completely randomly.

Pair Corralation between Hangzhou Guotai and Guangdong Tianhe

Assuming the 90 days trading horizon Hangzhou Guotai Environmental is expected to generate 0.71 times more return on investment than Guangdong Tianhe. However, Hangzhou Guotai Environmental is 1.4 times less risky than Guangdong Tianhe. It trades about 0.02 of its potential returns per unit of risk. Guangdong Tianhe Agricultural is currently generating about -0.28 per unit of risk. If you would invest  3,132  in Hangzhou Guotai Environmental on October 11, 2024 and sell it today you would earn a total of  14.00  from holding Hangzhou Guotai Environmental or generate 0.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Hangzhou Guotai Environmental  vs.  Guangdong Tianhe Agricultural

 Performance 
       Timeline  
Hangzhou Guotai Envi 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Guotai Environmental are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Guotai may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Guangdong Tianhe Agr 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Tianhe Agricultural are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Tianhe may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hangzhou Guotai and Guangdong Tianhe Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hangzhou Guotai and Guangdong Tianhe

The main advantage of trading using opposite Hangzhou Guotai and Guangdong Tianhe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hangzhou Guotai position performs unexpectedly, Guangdong Tianhe 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 Guangdong Tianhe will offset losses from the drop in Guangdong Tianhe's long position.
The idea behind Hangzhou Guotai Environmental and Guangdong Tianhe Agricultural 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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