Correlation Between Guanghui Energy and Caihong Display

Can any of the company-specific risk be diversified away by investing in both Guanghui Energy and Caihong Display 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 Guanghui Energy and Caihong Display into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guanghui Energy Co and Caihong Display Devices, you can compare the effects of market volatilities on Guanghui Energy and Caihong Display 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 Guanghui Energy with a short position of Caihong Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guanghui Energy and Caihong Display.

Diversification Opportunities for Guanghui Energy and Caihong Display

0.07

Correlation Coefficient

Guanghui Energy  Caihong Display

Significant diversification

The 3 months correlation between Guanghui and Caihong is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Guanghui Energy Co and Caihong Display Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caihong Display Devices and Guanghui Energy 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 Guanghui Energy Co are associated (or correlated) with Caihong Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caihong Display Devices has no effect on the direction of Guanghui Energy i.e., Guanghui Energy and Caihong Display go up and down completely randomly.

Pair Corralation between Guanghui Energy and Caihong Display

Assuming the 90 days trading horizon Guanghui Energy Co is expected to generate 0.5 times more return on investment than Caihong Display. However, Guanghui Energy Co is 2.01 times less risky than Caihong Display. It trades about -0.06 of its potential returns per unit of risk. Caihong Display Devices is currently generating about -0.03 per unit of risk. If you would invest  672.00  in Guanghui Energy Co on December 25, 2024 and sell it today you would lose (28.00) from holding Guanghui Energy Co or give up 4.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Guanghui Energy Co  vs.  Caihong Display Devices

Guanghui Energy

Risk-Adjusted Performance

Very Weak

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

Caihong Display Devices

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Guanghui Energy and Caihong Display

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

The idea behind Guanghui Energy Co and Caihong Display Devices 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.