Correlation Between Rongcheer Industrial and Guangzhou Dongfang

Can any of the company-specific risk be diversified away by investing in both Rongcheer Industrial and Guangzhou Dongfang 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 Rongcheer Industrial and Guangzhou Dongfang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rongcheer Industrial Technology and Guangzhou Dongfang Hotel, you can compare the effects of market volatilities on Rongcheer Industrial and Guangzhou Dongfang 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 Rongcheer Industrial with a short position of Guangzhou Dongfang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rongcheer Industrial and Guangzhou Dongfang.

Diversification Opportunities for Rongcheer Industrial and Guangzhou Dongfang

0.78

Correlation Coefficient

Rongcheer Industrial  Guangzhou Dongfang

Poor diversification

The 3 months correlation between Rongcheer and Guangzhou is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Rongcheer Industrial Technolog and Guangzhou Dongfang Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Dongfang Hotel and Rongcheer Industrial 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 Rongcheer Industrial Technology are associated (or correlated) with Guangzhou Dongfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Dongfang Hotel has no effect on the direction of Rongcheer Industrial i.e., Rongcheer Industrial and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between Rongcheer Industrial and Guangzhou Dongfang

Assuming the 90 days trading horizon Rongcheer Industrial Technology is expected to generate 1.57 times more return on investment than Guangzhou Dongfang. However, Rongcheer Industrial is 1.57 times more volatile than Guangzhou Dongfang Hotel. It trades about 0.01 of its potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.0 per unit of risk. If you would invest  6,487  in Rongcheer Industrial Technology on October 26, 2024 and sell it today you would lose (1,559) from holding Rongcheer Industrial Technology or give up 24.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.59%
Values	Daily Returns

Rongcheer Industrial Technolog  vs.  Guangzhou Dongfang Hotel

Rongcheer Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rongcheer Industrial Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Rongcheer Industrial and Guangzhou Dongfang

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

The idea behind Rongcheer Industrial Technology and Guangzhou Dongfang Hotel 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.

Check out your portfolio center.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.