Correlation Between Guangxi Wuzhou and ChengDu Hi

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

By analyzing existing cross correlation between Guangxi Wuzhou Communications and ChengDu Hi Tech Development, you can compare the effects of market volatilities on Guangxi Wuzhou and ChengDu Hi 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 Wuzhou with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangxi Wuzhou and ChengDu Hi.

Diversification Opportunities for Guangxi Wuzhou and ChengDu Hi

0.05

Correlation Coefficient

Guangxi Wuzhou  ChengDu Hi

Significant diversification

The 3 months correlation between Guangxi and ChengDu is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Guangxi Wuzhou Communications and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and Guangxi Wuzhou 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 Wuzhou Communications are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of Guangxi Wuzhou i.e., Guangxi Wuzhou and ChengDu Hi go up and down completely randomly.

Pair Corralation between Guangxi Wuzhou and ChengDu Hi

Assuming the 90 days trading horizon Guangxi Wuzhou Communications is expected to generate 0.75 times more return on investment than ChengDu Hi. However, Guangxi Wuzhou Communications is 1.33 times less risky than ChengDu Hi. It trades about 0.11 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about 0.0 per unit of risk. If you would invest  395.00  in Guangxi Wuzhou Communications on October 8, 2024 and sell it today you would earn a total of  84.00  from holding Guangxi Wuzhou Communications or generate 21.27% return on investment over 90 days.

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

Guangxi Wuzhou Communications  vs.  ChengDu Hi Tech Development

Guangxi Wuzhou Commu

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangxi Wuzhou Communications are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangxi Wuzhou sustained solid returns over the last few months and may actually be approaching a breakup point.

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangxi Wuzhou and ChengDu Hi

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

The idea behind Guangxi Wuzhou Communications and ChengDu Hi Tech Development 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.