Correlation Between Metro Investment and Guangdong Advertising

Can any of the company-specific risk be diversified away by investing in both Metro Investment and Guangdong Advertising 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 Metro Investment and Guangdong Advertising into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Metro Investment Development and Guangdong Advertising Co, you can compare the effects of market volatilities on Metro Investment and Guangdong Advertising 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 Metro Investment with a short position of Guangdong Advertising. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Investment and Guangdong Advertising.

Diversification Opportunities for Metro Investment and Guangdong Advertising

0.41

Correlation Coefficient

Metro Investment  Guangdong Advertising

Very weak diversification

The 3 months correlation between Metro and Guangdong is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Metro Investment Development and Guangdong Advertising Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Advertising and Metro Investment 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 Metro Investment Development are associated (or correlated) with Guangdong Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Advertising has no effect on the direction of Metro Investment i.e., Metro Investment and Guangdong Advertising go up and down completely randomly.

Pair Corralation between Metro Investment and Guangdong Advertising

Assuming the 90 days trading horizon Metro Investment Development is expected to under-perform the Guangdong Advertising. But the stock apears to be less risky and, when comparing its historical volatility, Metro Investment Development is 1.84 times less risky than Guangdong Advertising. The stock trades about -0.1 of its potential returns per unit of risk. The Guangdong Advertising Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  942.00  in Guangdong Advertising Co on December 2, 2024 and sell it today you would lose (113.00) from holding Guangdong Advertising Co or give up 12.0% of portfolio value over 90 days.

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

Metro Investment Development  vs.  Guangdong Advertising Co

Metro Investment Dev

Risk-Adjusted Performance

Very Weak

Over the last 90 days Metro Investment Development 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.

Guangdong Advertising

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Metro Investment and Guangdong Advertising

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

The idea behind Metro Investment Development and Guangdong Advertising Co 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.