Correlation Between Gome Telecom and Chengdu Xinzhu

Can any of the company-specific risk be diversified away by investing in both Gome Telecom and Chengdu Xinzhu 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 Gome Telecom and Chengdu Xinzhu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gome Telecom Equipment and Chengdu Xinzhu RoadBridge, you can compare the effects of market volatilities on Gome Telecom and Chengdu Xinzhu 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 Gome Telecom with a short position of Chengdu Xinzhu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gome Telecom and Chengdu Xinzhu.

Diversification Opportunities for Gome Telecom and Chengdu Xinzhu

0.4

Correlation Coefficient

Gome Telecom  Chengdu Xinzhu

Very weak diversification

The 3 months correlation between Gome and Chengdu is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Gome Telecom Equipment and Chengdu Xinzhu RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xinzhu RoadBridge and Gome Telecom 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 Gome Telecom Equipment are associated (or correlated) with Chengdu Xinzhu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xinzhu RoadBridge has no effect on the direction of Gome Telecom i.e., Gome Telecom and Chengdu Xinzhu go up and down completely randomly.

Pair Corralation between Gome Telecom and Chengdu Xinzhu

Assuming the 90 days trading horizon Gome Telecom Equipment is expected to under-perform the Chengdu Xinzhu. In addition to that, Gome Telecom is 1.19 times more volatile than Chengdu Xinzhu RoadBridge. It trades about -0.06 of its total potential returns per unit of risk. Chengdu Xinzhu RoadBridge is currently generating about 0.02 per unit of volatility. If you would invest  503.00  in Chengdu Xinzhu RoadBridge on September 19, 2024 and sell it today you would earn a total of  38.00  from holding Chengdu Xinzhu RoadBridge or generate 7.55% return on investment over 90 days.

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

Gome Telecom Equipment  vs.  Chengdu Xinzhu RoadBridge

Gome Telecom Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

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

Chengdu Xinzhu RoadBridge

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xinzhu RoadBridge are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xinzhu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gome Telecom and Chengdu Xinzhu

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

The idea behind Gome Telecom Equipment and Chengdu Xinzhu RoadBridge 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.