Correlation Between China World and Guangzhou Boji

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

By analyzing existing cross correlation between China World Trade and Guangzhou Boji Medical, you can compare the effects of market volatilities on China World and Guangzhou Boji 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 China World with a short position of Guangzhou Boji. Check out your portfolio center. Please also check ongoing floating volatility patterns of China World and Guangzhou Boji.

Diversification Opportunities for China World and Guangzhou Boji

-0.19

Correlation Coefficient

China World  Guangzhou Boji

Good diversification

The 3 months correlation between China and Guangzhou is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and Guangzhou Boji Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Boji Medical and China World 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 China World Trade are associated (or correlated) with Guangzhou Boji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Boji Medical has no effect on the direction of China World i.e., China World and Guangzhou Boji go up and down completely randomly.

Pair Corralation between China World and Guangzhou Boji

Assuming the 90 days trading horizon China World Trade is expected to generate 0.54 times more return on investment than Guangzhou Boji. However, China World Trade is 1.85 times less risky than Guangzhou Boji. It trades about 0.15 of its potential returns per unit of risk. Guangzhou Boji Medical is currently generating about -0.25 per unit of risk. If you would invest  2,279  in China World Trade on October 7, 2024 and sell it today you would earn a total of  106.00  from holding China World Trade or generate 4.65% return on investment over 90 days.

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

China World Trade  vs.  Guangzhou Boji Medical

China World Trade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China World Trade 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 Boji Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Boji Medical 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China World and Guangzhou Boji

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

The idea behind China World Trade and Guangzhou Boji Medical 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.