Correlation Between Rongcheer Industrial and Guangzhou Seagull

Can any of the company-specific risk be diversified away by investing in both Rongcheer Industrial and Guangzhou Seagull 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 Seagull 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 Seagull Kitchen, you can compare the effects of market volatilities on Rongcheer Industrial and Guangzhou Seagull 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 Seagull. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rongcheer Industrial and Guangzhou Seagull.

Diversification Opportunities for Rongcheer Industrial and Guangzhou Seagull

0.83

Correlation Coefficient

Rongcheer Industrial  Guangzhou Seagull

Very poor diversification

The 3 months correlation between Rongcheer and Guangzhou is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Rongcheer Industrial Technolog and Guangzhou Seagull Kitchen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Seagull Kitchen 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 Seagull. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Seagull Kitchen has no effect on the direction of Rongcheer Industrial i.e., Rongcheer Industrial and Guangzhou Seagull go up and down completely randomly.

Pair Corralation between Rongcheer Industrial and Guangzhou Seagull

Assuming the 90 days trading horizon Rongcheer Industrial is expected to generate 3.77 times less return on investment than Guangzhou Seagull. But when comparing it to its historical volatility, Rongcheer Industrial Technology is 1.08 times less risky than Guangzhou Seagull. It trades about 0.04 of its potential returns per unit of risk. Guangzhou Seagull Kitchen is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  308.00  in Guangzhou Seagull Kitchen on September 20, 2024 and sell it today you would earn a total of  23.00  from holding Guangzhou Seagull Kitchen or generate 7.47% return on investment over 90 days.

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

Rongcheer Industrial Technolog  vs.  Guangzhou Seagull Kitchen

Rongcheer Industrial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rongcheer Industrial Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rongcheer Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Seagull Kitchen

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Seagull Kitchen are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Seagull sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rongcheer Industrial and Guangzhou Seagull

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

The idea behind Rongcheer Industrial Technology and Guangzhou Seagull Kitchen 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.