Correlation Between State Grid and Guangzhou Dongfang

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

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

Diversification Opportunities for State Grid and Guangzhou Dongfang

0.87

Correlation Coefficient

State Grid  Guangzhou Dongfang

Very poor diversification

The 3 months correlation between State and Guangzhou is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding State Grid InformationCommunic 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 State Grid 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 State Grid InformationCommunication 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 State Grid i.e., State Grid and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between State Grid and Guangzhou Dongfang

Assuming the 90 days trading horizon State Grid InformationCommunication is expected to generate 1.3 times more return on investment than Guangzhou Dongfang. However, State Grid is 1.3 times more volatile than Guangzhou Dongfang Hotel. It trades about 0.16 of its potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.14 per unit of risk. If you would invest  1,681  in State Grid InformationCommunication on September 5, 2024 and sell it today you would earn a total of  549.00  from holding State Grid InformationCommunication or generate 32.66% return on investment over 90 days.

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

State Grid InformationCommunic  vs.  Guangzhou Dongfang Hotel

State Grid Informati

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Grid InformationCommunication are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, State Grid sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Dongfang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Grid and Guangzhou Dongfang

The main advantage of trading using opposite State Grid and Guangzhou Dongfang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Grid 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 State Grid InformationCommunication 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.