Correlation Between Industrial and Guangdong Electric

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

Diversification Opportunities for Industrial and Guangdong Electric

0.32

Correlation Coefficient

Industrial  Guangdong Electric

Weak diversification

The 3 months correlation between Industrial and Guangdong is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Guangdong Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Electric Power 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 Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Electric Power has no effect on the direction of Industrial i.e., Industrial and Guangdong Electric go up and down completely randomly.

Pair Corralation between Industrial and Guangdong Electric

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 2.57 times more return on investment than Guangdong Electric. However, Industrial is 2.57 times more volatile than Guangdong Electric Power. It trades about 0.45 of its potential returns per unit of risk. Guangdong Electric Power is currently generating about 0.05 per unit of risk. If you would invest  607.00  in Industrial and Commercial on September 26, 2024 and sell it today you would earn a total of  71.00  from holding Industrial and Commercial or generate 11.7% return on investment over 90 days.

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

Industrial and Commercial  vs.  Guangdong Electric Power

Industrial and Commercial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 9 (%) 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 January 2025.

Guangdong Electric Power

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Electric Power are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Industrial and Guangdong Electric

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

The idea behind Industrial and Commercial and Guangdong Electric Power 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.