Correlation Between Chongqing Road and Guangzhou Automobile

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

By analyzing existing cross correlation between Chongqing Road Bridge and Guangzhou Automobile Group, you can compare the effects of market volatilities on Chongqing Road and Guangzhou Automobile 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 Chongqing Road with a short position of Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Road and Guangzhou Automobile.

Diversification Opportunities for Chongqing Road and Guangzhou Automobile

0.66

Correlation Coefficient

Chongqing Road  Guangzhou Automobile

Poor diversification

The 3 months correlation between Chongqing and Guangzhou is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Road Bridge and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Chongqing Road 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 Chongqing Road Bridge are associated (or correlated) with Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of Chongqing Road i.e., Chongqing Road and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Chongqing Road and Guangzhou Automobile

Assuming the 90 days trading horizon Chongqing Road Bridge is expected to under-perform the Guangzhou Automobile. In addition to that, Chongqing Road is 1.49 times more volatile than Guangzhou Automobile Group. It trades about -0.14 of its total potential returns per unit of risk. Guangzhou Automobile Group is currently generating about -0.1 per unit of volatility. If you would invest  980.00  in Guangzhou Automobile Group on December 5, 2024 and sell it today you would lose (111.00) from holding Guangzhou Automobile Group or give up 11.33% of portfolio value over 90 days.

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

Chongqing Road Bridge  vs.  Guangzhou Automobile Group

Chongqing Road Bridge

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chongqing Road Bridge 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Guangzhou Automobile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangzhou Automobile Group 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.

Pair Trading with Chongqing Road and Guangzhou Automobile

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

The idea behind Chongqing Road Bridge and Guangzhou Automobile Group 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.