Correlation Between Metro Investment and Guangdong Liantai

Can any of the company-specific risk be diversified away by investing in both Metro Investment and Guangdong Liantai 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 Liantai 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 Liantai Environmental, you can compare the effects of market volatilities on Metro Investment and Guangdong Liantai 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 Liantai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Investment and Guangdong Liantai.

Diversification Opportunities for Metro Investment and Guangdong Liantai

0.41

Correlation Coefficient

Metro Investment  Guangdong Liantai

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 Liantai Environmenta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Liantai 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 Liantai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Liantai has no effect on the direction of Metro Investment i.e., Metro Investment and Guangdong Liantai go up and down completely randomly.

Pair Corralation between Metro Investment and Guangdong Liantai

Assuming the 90 days trading horizon Metro Investment Development is expected to under-perform the Guangdong Liantai. In addition to that, Metro Investment is 1.28 times more volatile than Guangdong Liantai Environmental. It trades about -0.08 of its total potential returns per unit of risk. Guangdong Liantai Environmental is currently generating about -0.02 per unit of volatility. If you would invest  415.00  in Guangdong Liantai Environmental on September 24, 2024 and sell it today you would lose (7.00) from holding Guangdong Liantai Environmental or give up 1.69% 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 Liantai Environmenta

Metro Investment Dev

Risk-Adjusted Performance

4 of 100

Insignificant

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

Guangdong Liantai

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Liantai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Investment and Guangdong Liantai

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

The idea behind Metro Investment Development and Guangdong Liantai Environmental 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.