Correlation Between Guotai Junan and Guangzhou Haozhi

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

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

Diversification Opportunities for Guotai Junan and Guangzhou Haozhi

0.33

Correlation Coefficient

Guotai Junan  Guangzhou Haozhi

Weak diversification

The 3 months correlation between Guotai and Guangzhou is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Guotai Junan Securities 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 Guotai Junan 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 Guotai Junan Securities 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 Guotai Junan i.e., Guotai Junan and Guangzhou Haozhi go up and down completely randomly.

Pair Corralation between Guotai Junan and Guangzhou Haozhi

Assuming the 90 days trading horizon Guotai Junan Securities is expected to generate 0.6 times more return on investment than Guangzhou Haozhi. However, Guotai Junan Securities is 1.66 times less risky than Guangzhou Haozhi. It trades about 0.11 of its potential returns per unit of risk. Guangzhou Haozhi Industrial is currently generating about 0.05 per unit of risk. If you would invest  1,470  in Guotai Junan Securities on October 9, 2024 and sell it today you would earn a total of  285.00  from holding Guotai Junan Securities or generate 19.39% return on investment over 90 days.

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

Guotai Junan Securities  vs.  Guangzhou Haozhi Industrial

Guotai Junan Securities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guotai Junan Securities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guotai Junan sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Guotai Junan and Guangzhou Haozhi

The main advantage of trading using opposite Guotai Junan and Guangzhou Haozhi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guotai Junan 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 Guotai Junan Securities 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.