Correlation Between Industrial and Guangdong Provincial

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

By analyzing existing cross correlation between Industrial and Commercial and Guangdong Provincial Expressway, you can compare the effects of market volatilities on Industrial and Guangdong Provincial 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 Industrial with a short position of Guangdong Provincial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Guangdong Provincial.

Diversification Opportunities for Industrial and Guangdong Provincial

0.94

Correlation Coefficient

Industrial  Guangdong Provincial

Almost no diversification

The 3 months correlation between Industrial and Guangdong is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Guangdong Provincial Expresswa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Provincial and Industrial 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 Industrial and Commercial are associated (or correlated) with Guangdong Provincial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Provincial has no effect on the direction of Industrial i.e., Industrial and Guangdong Provincial go up and down completely randomly.

Pair Corralation between Industrial and Guangdong Provincial

Assuming the 90 days trading horizon Industrial is expected to generate 1.64 times less return on investment than Guangdong Provincial. But when comparing it to its historical volatility, Industrial and Commercial is 1.27 times less risky than Guangdong Provincial. It trades about 0.09 of its potential returns per unit of risk. Guangdong Provincial Expressway is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  704.00  in Guangdong Provincial Expressway on October 22, 2024 and sell it today you would earn a total of  609.00  from holding Guangdong Provincial Expressway or generate 86.51% return on investment over 90 days.

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

Industrial and Commercial  vs.  Guangdong Provincial Expresswa

Industrial and Commercial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Guangdong Provincial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Provincial Expressway are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Provincial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and Guangdong Provincial

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

The idea behind Industrial and Commercial and Guangdong Provincial Expressway 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.