Correlation Between Changchun Engley and Guangzhou Seagull

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

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

Diversification Opportunities for Changchun Engley and Guangzhou Seagull

0.79

Correlation Coefficient

Changchun Engley  Guangzhou Seagull

Poor diversification

The 3 months correlation between Changchun and Guangzhou is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Engley Automobile and Guangzhou Seagull Kitchen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Seagull Kitchen and Changchun Engley 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 Changchun Engley Automobile are associated (or correlated) with Guangzhou Seagull. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Seagull Kitchen has no effect on the direction of Changchun Engley i.e., Changchun Engley and Guangzhou Seagull go up and down completely randomly.

Pair Corralation between Changchun Engley and Guangzhou Seagull

Assuming the 90 days trading horizon Changchun Engley Automobile is expected to under-perform the Guangzhou Seagull. But the stock apears to be less risky and, when comparing its historical volatility, Changchun Engley Automobile is 1.19 times less risky than Guangzhou Seagull. The stock trades about -0.03 of its potential returns per unit of risk. The Guangzhou Seagull Kitchen is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  301.00  in Guangzhou Seagull Kitchen on December 27, 2024 and sell it today you would lose (2.00) from holding Guangzhou Seagull Kitchen or give up 0.66% of portfolio value over 90 days.

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

Changchun Engley Automobile  vs.  Guangzhou Seagull Kitchen

Changchun Engley Aut

Risk-Adjusted Performance

Very Weak

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

Guangzhou Seagull Kitchen

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Changchun Engley and Guangzhou Seagull

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

The idea behind Changchun Engley Automobile and Guangzhou Seagull Kitchen 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.