Correlation Between Guangxi Guiguan and Shandong Pharmaceutical

Can any of the company-specific risk be diversified away by investing in both Guangxi Guiguan and Shandong Pharmaceutical 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 Guangxi Guiguan and Shandong Pharmaceutical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangxi Guiguan Electric and Shandong Pharmaceutical Glass, you can compare the effects of market volatilities on Guangxi Guiguan and Shandong Pharmaceutical 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 Guangxi Guiguan with a short position of Shandong Pharmaceutical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangxi Guiguan and Shandong Pharmaceutical.

Diversification Opportunities for Guangxi Guiguan and Shandong Pharmaceutical

0.21

Correlation Coefficient

Guangxi Guiguan  Shandong Pharmaceutical

Modest diversification

The 3 months correlation between Guangxi and Shandong is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Guangxi Guiguan Electric and Shandong Pharmaceutical Glass in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Pharmaceutical and Guangxi Guiguan 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 Guangxi Guiguan Electric are associated (or correlated) with Shandong Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Pharmaceutical has no effect on the direction of Guangxi Guiguan i.e., Guangxi Guiguan and Shandong Pharmaceutical go up and down completely randomly.

Pair Corralation between Guangxi Guiguan and Shandong Pharmaceutical

Assuming the 90 days trading horizon Guangxi Guiguan Electric is expected to generate 0.88 times more return on investment than Shandong Pharmaceutical. However, Guangxi Guiguan Electric is 1.13 times less risky than Shandong Pharmaceutical. It trades about 0.01 of its potential returns per unit of risk. Shandong Pharmaceutical Glass is currently generating about -0.08 per unit of risk. If you would invest  630.00  in Guangxi Guiguan Electric on October 26, 2024 and sell it today you would earn a total of  1.00  from holding Guangxi Guiguan Electric or generate 0.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Guangxi Guiguan Electric  vs.  Shandong Pharmaceutical Glass

Guangxi Guiguan Electric

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Guangxi Guiguan Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangxi Guiguan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Pharmaceutical Glass 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 Guangxi Guiguan and Shandong Pharmaceutical

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

The idea behind Guangxi Guiguan Electric and Shandong Pharmaceutical Glass 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.