Correlation Between Anhui Jianghuai and Gome Telecom

Can any of the company-specific risk be diversified away by investing in both Anhui Jianghuai and Gome Telecom 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 Anhui Jianghuai and Gome Telecom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Jianghuai Automobile and Gome Telecom Equipment, you can compare the effects of market volatilities on Anhui Jianghuai and Gome Telecom 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 Anhui Jianghuai with a short position of Gome Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Jianghuai and Gome Telecom.

Diversification Opportunities for Anhui Jianghuai and Gome Telecom

-0.27

Correlation Coefficient

Anhui Jianghuai  Gome Telecom

Very good diversification

The 3 months correlation between Anhui and Gome is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Jianghuai Automobile and Gome Telecom Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gome Telecom Equipment and Anhui Jianghuai 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 Anhui Jianghuai Automobile are associated (or correlated) with Gome Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gome Telecom Equipment has no effect on the direction of Anhui Jianghuai i.e., Anhui Jianghuai and Gome Telecom go up and down completely randomly.

Pair Corralation between Anhui Jianghuai and Gome Telecom

Assuming the 90 days trading horizon Anhui Jianghuai Automobile is expected to generate 1.25 times more return on investment than Gome Telecom. However, Anhui Jianghuai is 1.25 times more volatile than Gome Telecom Equipment. It trades about -0.02 of its potential returns per unit of risk. Gome Telecom Equipment is currently generating about -0.67 per unit of risk. If you would invest  3,616  in Anhui Jianghuai Automobile on December 1, 2024 and sell it today you would lose (236.00) from holding Anhui Jianghuai Automobile or give up 6.53% of portfolio value over 90 days.

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

Anhui Jianghuai Automobile  vs.  Gome Telecom Equipment

Anhui Jianghuai Auto

Risk-Adjusted Performance

Very Weak

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

Gome Telecom Equipment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gome Telecom Equipment 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.

Pair Trading with Anhui Jianghuai and Gome Telecom

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

The idea behind Anhui Jianghuai Automobile and Gome Telecom Equipment 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.