Correlation Between Anhui Jianghuai and Guangzhou Automobile

Can any of the company-specific risk be diversified away by investing in both Anhui Jianghuai and Guangzhou Automobile 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 Guangzhou Automobile 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 Guangzhou Automobile Group, you can compare the effects of market volatilities on Anhui Jianghuai and Guangzhou Automobile 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 Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Jianghuai and Guangzhou Automobile.

Diversification Opportunities for Anhui Jianghuai and Guangzhou Automobile

0.68

Correlation Coefficient

Anhui Jianghuai  Guangzhou Automobile

Poor diversification

The 3 months correlation between Anhui and Guangzhou is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Jianghuai Automobile and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile 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 Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of Anhui Jianghuai i.e., Anhui Jianghuai and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Anhui Jianghuai and Guangzhou Automobile

Assuming the 90 days trading horizon Anhui Jianghuai Automobile is expected to generate 1.39 times more return on investment than Guangzhou Automobile. However, Anhui Jianghuai is 1.39 times more volatile than Guangzhou Automobile Group. It trades about 0.22 of its potential returns per unit of risk. Guangzhou Automobile Group is currently generating about 0.17 per unit of risk. If you would invest  2,225  in Anhui Jianghuai Automobile on September 12, 2024 and sell it today you would earn a total of  1,428  from holding Anhui Jianghuai Automobile or generate 64.18% return on investment over 90 days.

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

Anhui Jianghuai Automobile  vs.  Guangzhou Automobile Group

Anhui Jianghuai Auto

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jianghuai Automobile are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Jianghuai sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Automobile

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anhui Jianghuai and Guangzhou Automobile

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

The idea behind Anhui Jianghuai Automobile and Guangzhou Automobile Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.