Correlation Between Guangzhou Restaurants and Hongrun Construction

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

Diversification Opportunities for Guangzhou Restaurants and Hongrun Construction

0.89

Correlation Coefficient

Guangzhou Restaurants  Hongrun Construction

Very poor diversification

The 3 months correlation between Guangzhou and Hongrun is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and Hongrun Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongrun Construction 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 Hongrun Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hongrun Construction has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and Hongrun Construction go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and Hongrun Construction

Assuming the 90 days trading horizon Guangzhou Restaurants Group is expected to under-perform the Hongrun Construction. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Restaurants Group is 1.22 times less risky than Hongrun Construction. The stock trades about -0.03 of its potential returns per unit of risk. The Hongrun Construction Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  454.00  in Hongrun Construction Group on September 21, 2024 and sell it today you would earn a total of  3.00  from holding Hongrun Construction Group or generate 0.66% return on investment over 90 days.

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

Guangzhou Restaurants Group  vs.  Hongrun Construction Group

Guangzhou Restaurants

Risk-Adjusted Performance

12 of 100

Good

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

Hongrun Construction

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hongrun Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Restaurants and Hongrun Construction

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

The idea behind Guangzhou Restaurants Group and Hongrun Construction 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.