Correlation Between Bank of Communications and Guangzhou Automobile

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

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

Diversification Opportunities for Bank of Communications and Guangzhou Automobile

0.29

Correlation Coefficient

Bank of Communications  Guangzhou Automobile

Modest diversification

The 3 months correlation between Bank and Guangzhou is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Communications and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Bank of Communications 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 Bank of Communications are associated (or correlated) with Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of Bank of Communications i.e., Bank of Communications and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Bank of Communications and Guangzhou Automobile

Assuming the 90 days trading horizon Bank of Communications is expected to under-perform the Guangzhou Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Communications is 2.43 times less risky than Guangzhou Automobile. The stock trades about -0.01 of its potential returns per unit of risk. The Guangzhou Automobile Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  819.00  in Guangzhou Automobile Group on October 22, 2024 and sell it today you would earn a total of  39.00  from holding Guangzhou Automobile Group or generate 4.76% return on investment over 90 days.

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

Bank of Communications  vs.  Guangzhou Automobile Group

Bank of Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangzhou Automobile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 3 (%) 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.

Pair Trading with Bank of Communications and Guangzhou Automobile

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

The idea behind Bank of Communications and Guangzhou Automobile Group 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.