Correlation Between China State and Gansu Huangtai

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

By analyzing existing cross correlation between China State Construction and Gansu Huangtai Wine marketing, you can compare the effects of market volatilities on China State and Gansu Huangtai 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 China State with a short position of Gansu Huangtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of China State and Gansu Huangtai.

Diversification Opportunities for China State and Gansu Huangtai

-0.6

Correlation Coefficient

China State  Gansu Huangtai

Excellent diversification

The 3 months correlation between China and Gansu is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction and Gansu Huangtai Wine marketing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Huangtai Wine and China State 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 China State Construction are associated (or correlated) with Gansu Huangtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Huangtai Wine has no effect on the direction of China State i.e., China State and Gansu Huangtai go up and down completely randomly.

Pair Corralation between China State and Gansu Huangtai

Assuming the 90 days trading horizon China State Construction is expected to under-perform the Gansu Huangtai. But the stock apears to be less risky and, when comparing its historical volatility, China State Construction is 3.11 times less risky than Gansu Huangtai. The stock trades about -0.14 of its potential returns per unit of risk. The Gansu Huangtai Wine marketing is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,192  in Gansu Huangtai Wine marketing on October 21, 2024 and sell it today you would earn a total of  471.00  from holding Gansu Huangtai Wine marketing or generate 39.51% return on investment over 90 days.

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

China State Construction  vs.  Gansu Huangtai Wine marketing

China State Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China State Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Gansu Huangtai Wine

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Huangtai Wine marketing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Huangtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China State and Gansu Huangtai

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

The idea behind China State Construction and Gansu Huangtai Wine marketing 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.