Correlation Between Zhen Ding and GCS Holdings

Can any of the company-specific risk be diversified away by investing in both Zhen Ding and GCS Holdings 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 Zhen Ding and GCS Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhen Ding Technology and GCS Holdings, you can compare the effects of market volatilities on Zhen Ding and GCS Holdings 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 Zhen Ding with a short position of GCS Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhen Ding and GCS Holdings.

Diversification Opportunities for Zhen Ding and GCS Holdings

0.74

Correlation Coefficient

Zhen Ding  GCS Holdings

Poor diversification

The 3 months correlation between Zhen and GCS is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Zhen Ding Technology and GCS Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GCS Holdings and Zhen Ding 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 Zhen Ding Technology are associated (or correlated) with GCS Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GCS Holdings has no effect on the direction of Zhen Ding i.e., Zhen Ding and GCS Holdings go up and down completely randomly.

Pair Corralation between Zhen Ding and GCS Holdings

Assuming the 90 days trading horizon Zhen Ding is expected to generate 6.65 times less return on investment than GCS Holdings. But when comparing it to its historical volatility, Zhen Ding Technology is 3.38 times less risky than GCS Holdings. It trades about 0.08 of its potential returns per unit of risk. GCS Holdings is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,940  in GCS Holdings on October 9, 2024 and sell it today you would earn a total of  2,960  from holding GCS Holdings or generate 33.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

Zhen Ding Technology  vs.  GCS Holdings

Zhen Ding Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhen Ding Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Zhen Ding may actually be approaching a critical reversion point that can send shares even higher in February 2025.

GCS Holdings

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GCS Holdings are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, GCS Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhen Ding and GCS Holdings

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

The idea behind Zhen Ding Technology and GCS Holdings 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.