Correlation Between Guangzhou Restaurants and China Baoan

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

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

Diversification Opportunities for Guangzhou Restaurants and China Baoan

0.52

Correlation Coefficient

Guangzhou Restaurants  China Baoan

Very weak diversification

The 3 months correlation between Guangzhou and China is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and China Baoan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Baoan Group and Guangzhou Restaurants 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 Guangzhou Restaurants Group are associated (or correlated) with China Baoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Baoan Group has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and China Baoan go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and China Baoan

Assuming the 90 days trading horizon Guangzhou Restaurants Group is expected to under-perform the China Baoan. In addition to that, Guangzhou Restaurants is 1.22 times more volatile than China Baoan Group. It trades about -0.2 of its total potential returns per unit of risk. China Baoan Group is currently generating about -0.21 per unit of volatility. If you would invest  929.00  in China Baoan Group on October 22, 2024 and sell it today you would lose (57.00) from holding China Baoan Group or give up 6.14% of portfolio value over 90 days.

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

Guangzhou Restaurants Group  vs.  China Baoan Group

Guangzhou Restaurants

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Restaurants Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Restaurants is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Baoan Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangzhou Restaurants and China Baoan

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

The idea behind Guangzhou Restaurants Group and China Baoan 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.