Correlation Between Changchun Faway and Guangzhou Haozhi

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

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

Diversification Opportunities for Changchun Faway and Guangzhou Haozhi

0.56

Correlation Coefficient

Changchun Faway  Guangzhou Haozhi

Very weak diversification

The 3 months correlation between Changchun and Guangzhou is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and Guangzhou Haozhi Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Haozhi Ind and Changchun Faway 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 Changchun Faway Automobile are associated (or correlated) with Guangzhou Haozhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Haozhi Ind has no effect on the direction of Changchun Faway i.e., Changchun Faway and Guangzhou Haozhi go up and down completely randomly.

Pair Corralation between Changchun Faway and Guangzhou Haozhi

Assuming the 90 days trading horizon Changchun Faway is expected to generate 10.6 times less return on investment than Guangzhou Haozhi. But when comparing it to its historical volatility, Changchun Faway Automobile is 2.13 times less risky than Guangzhou Haozhi. It trades about 0.01 of its potential returns per unit of risk. Guangzhou Haozhi Industrial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  867.00  in Guangzhou Haozhi Industrial on October 9, 2024 and sell it today you would earn a total of  833.00  from holding Guangzhou Haozhi Industrial or generate 96.08% return on investment over 90 days.

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

Changchun Faway Automobile  vs.  Guangzhou Haozhi Industrial

Changchun Faway Auto

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangzhou Haozhi Ind

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Haozhi Industrial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Haozhi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changchun Faway and Guangzhou Haozhi

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

The idea behind Changchun Faway Automobile and Guangzhou Haozhi Industrial 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.