Correlation Between Guangzhou Automobile and Sanbo Hospital

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

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

Diversification Opportunities for Guangzhou Automobile and Sanbo Hospital

0.74

Correlation Coefficient

Guangzhou Automobile  Sanbo Hospital

Poor diversification

The 3 months correlation between Guangzhou and Sanbo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Automobile Group and Sanbo Hospital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanbo Hospital Management and Guangzhou Automobile 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 Guangzhou Automobile Group are associated (or correlated) with Sanbo Hospital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanbo Hospital Management has no effect on the direction of Guangzhou Automobile i.e., Guangzhou Automobile and Sanbo Hospital go up and down completely randomly.

Pair Corralation between Guangzhou Automobile and Sanbo Hospital

Assuming the 90 days trading horizon Guangzhou Automobile Group is expected to under-perform the Sanbo Hospital. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Automobile Group is 2.55 times less risky than Sanbo Hospital. The stock trades about -0.01 of its potential returns per unit of risk. The Sanbo Hospital Management is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,960  in Sanbo Hospital Management on September 26, 2024 and sell it today you would earn a total of  1,815  from holding Sanbo Hospital Management or generate 61.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.28%
Values	Daily Returns

Guangzhou Automobile Group  vs.  Sanbo Hospital Management

Guangzhou Automobile

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Sanbo Hospital Management

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Guangzhou Automobile and Sanbo Hospital

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

The idea behind Guangzhou Automobile Group and Sanbo Hospital Management 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.