Correlation Between Industrial Bank and Guosheng Financial

Can any of the company-specific risk be diversified away by investing in both Industrial Bank and Guosheng Financial 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 Industrial Bank and Guosheng Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Industrial Bank Co and Guosheng Financial Holding, you can compare the effects of market volatilities on Industrial Bank and Guosheng Financial 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 Industrial Bank with a short position of Guosheng Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Bank and Guosheng Financial.

Diversification Opportunities for Industrial Bank and Guosheng Financial

0.71

Correlation Coefficient

Industrial Bank  Guosheng Financial

Poor diversification

The 3 months correlation between Industrial and Guosheng is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Bank Co and Guosheng Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guosheng Financial and Industrial Bank 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 Industrial Bank Co are associated (or correlated) with Guosheng Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guosheng Financial has no effect on the direction of Industrial Bank i.e., Industrial Bank and Guosheng Financial go up and down completely randomly.

Pair Corralation between Industrial Bank and Guosheng Financial

Assuming the 90 days trading horizon Industrial Bank is expected to generate 4.14 times less return on investment than Guosheng Financial. But when comparing it to its historical volatility, Industrial Bank Co is 2.18 times less risky than Guosheng Financial. It trades about 0.14 of its potential returns per unit of risk. Guosheng Financial Holding is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  858.00  in Guosheng Financial Holding on September 13, 2024 and sell it today you would earn a total of  724.00  from holding Guosheng Financial Holding or generate 84.38% return on investment over 90 days.

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

Industrial Bank Co  vs.  Guosheng Financial Holding

Industrial Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Bank Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Guosheng Financial

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guosheng Financial Holding are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guosheng Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial Bank and Guosheng Financial

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

The idea behind Industrial Bank Co and Guosheng Financial Holding 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.