Correlation Between Guangzhou Automobile and Eastern Communications

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

Diversification Opportunities for Guangzhou Automobile and Eastern Communications

0.51

Correlation Coefficient

Guangzhou Automobile  Eastern Communications

Very weak diversification

The 3 months correlation between Guangzhou and Eastern is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Automobile Group and Eastern Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Communications 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 Eastern Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Communications has no effect on the direction of Guangzhou Automobile i.e., Guangzhou Automobile and Eastern Communications go up and down completely randomly.

Pair Corralation between Guangzhou Automobile and Eastern Communications

Assuming the 90 days trading horizon Guangzhou Automobile Group is expected to generate 1.3 times more return on investment than Eastern Communications. However, Guangzhou Automobile is 1.3 times more volatile than Eastern Communications Co. It trades about 0.05 of its potential returns per unit of risk. Eastern Communications Co is currently generating about -0.01 per unit of risk. If you would invest  800.00  in Guangzhou Automobile Group on October 21, 2024 and sell it today you would earn a total of  58.00  from holding Guangzhou Automobile Group or generate 7.25% return on investment over 90 days.

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

Guangzhou Automobile Group  vs.  Eastern Communications Co

Guangzhou Automobile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Automobile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Eastern Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangzhou Automobile and Eastern Communications

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

The idea behind Guangzhou Automobile Group and Eastern Communications Co 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.