Correlation Between Shanghai Jinfeng and Guangzhou Automobile

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

By analyzing existing cross correlation between Shanghai Jinfeng Wine and Guangzhou Automobile Group, you can compare the effects of market volatilities on Shanghai Jinfeng 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 Shanghai Jinfeng with a short position of Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Jinfeng and Guangzhou Automobile.

Diversification Opportunities for Shanghai Jinfeng and Guangzhou Automobile

0.82

Correlation Coefficient

Shanghai Jinfeng  Guangzhou Automobile

Very poor diversification

The 3 months correlation between Shanghai and Guangzhou is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Jinfeng Wine and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Shanghai Jinfeng 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 Shanghai Jinfeng Wine 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 Shanghai Jinfeng i.e., Shanghai Jinfeng and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Shanghai Jinfeng and Guangzhou Automobile

Assuming the 90 days trading horizon Shanghai Jinfeng is expected to generate 1.18 times less return on investment than Guangzhou Automobile. In addition to that, Shanghai Jinfeng is 1.16 times more volatile than Guangzhou Automobile Group. It trades about 0.04 of its total potential returns per unit of risk. Guangzhou Automobile Group is currently generating about 0.05 per unit of volatility. If you would invest  883.00  in Guangzhou Automobile Group on September 30, 2024 and sell it today you would earn a total of  61.00  from holding Guangzhou Automobile Group or generate 6.91% return on investment over 90 days.

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

Shanghai Jinfeng Wine  vs.  Guangzhou Automobile Group

Shanghai Jinfeng Wine

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Jinfeng Wine are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Jinfeng may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guangzhou Automobile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Automobile may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shanghai Jinfeng and Guangzhou Automobile

The main advantage of trading using opposite Shanghai Jinfeng and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Jinfeng 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 Shanghai Jinfeng Wine 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.