Correlation Between Changjiang Jinggong and Guangzhou KDT

Can any of the company-specific risk be diversified away by investing in both Changjiang Jinggong and Guangzhou KDT 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 Changjiang Jinggong and Guangzhou KDT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changjiang Jinggong Steel and Guangzhou KDT Machinery, you can compare the effects of market volatilities on Changjiang Jinggong and Guangzhou KDT 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 Changjiang Jinggong with a short position of Guangzhou KDT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changjiang Jinggong and Guangzhou KDT.

Diversification Opportunities for Changjiang Jinggong and Guangzhou KDT

0.65

Correlation Coefficient

Changjiang Jinggong  Guangzhou KDT

Poor diversification

The 3 months correlation between Changjiang and Guangzhou is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Changjiang Jinggong Steel and Guangzhou KDT Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou KDT Machinery and Changjiang Jinggong 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 Changjiang Jinggong Steel are associated (or correlated) with Guangzhou KDT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou KDT Machinery has no effect on the direction of Changjiang Jinggong i.e., Changjiang Jinggong and Guangzhou KDT go up and down completely randomly.

Pair Corralation between Changjiang Jinggong and Guangzhou KDT

Assuming the 90 days trading horizon Changjiang Jinggong Steel is expected to under-perform the Guangzhou KDT. But the stock apears to be less risky and, when comparing its historical volatility, Changjiang Jinggong Steel is 1.5 times less risky than Guangzhou KDT. The stock trades about -0.04 of its potential returns per unit of risk. The Guangzhou KDT Machinery is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,343  in Guangzhou KDT Machinery on October 27, 2024 and sell it today you would earn a total of  401.00  from holding Guangzhou KDT Machinery or generate 29.86% return on investment over 90 days.

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

Changjiang Jinggong Steel  vs.  Guangzhou KDT Machinery

Changjiang Jinggong Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangzhou KDT Machinery

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou KDT Machinery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou KDT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Changjiang Jinggong and Guangzhou KDT

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

The idea behind Changjiang Jinggong Steel and Guangzhou KDT Machinery 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.