Correlation Between Guangzhou Automobile and New China

Can any of the company-specific risk be diversified away by investing in both Guangzhou Automobile and New China 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 New China 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 New China Life, you can compare the effects of market volatilities on Guangzhou Automobile and New China 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 New China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Automobile and New China.

Diversification Opportunities for Guangzhou Automobile and New China

0.6

Correlation Coefficient

Guangzhou Automobile  New China

Poor diversification

The 3 months correlation between Guangzhou and New is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Automobile Group and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life 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 New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Guangzhou Automobile i.e., Guangzhou Automobile and New China go up and down completely randomly.

Pair Corralation between Guangzhou Automobile and New China

Assuming the 90 days trading horizon Guangzhou Automobile Group is expected to generate 1.07 times more return on investment than New China. However, Guangzhou Automobile is 1.07 times more volatile than New China Life. It trades about 0.1 of its potential returns per unit of risk. New China Life is currently generating about 0.06 per unit of risk. If you would invest  848.00  in Guangzhou Automobile Group on September 27, 2024 and sell it today you would earn a total of  99.00  from holding Guangzhou Automobile Group or generate 11.67% return on investment over 90 days.

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

Guangzhou Automobile Group  vs.  New China Life

Guangzhou Automobile

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 6 (%) 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.

New China Life

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New China Life are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, New China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Automobile and New China

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

The idea behind Guangzhou Automobile Group and New China Life 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.