Correlation Between Guangzhou Restaurants and Hangzhou Weiguang

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

Diversification Opportunities for Guangzhou Restaurants and Hangzhou Weiguang

0.78

Correlation Coefficient

Guangzhou Restaurants  Hangzhou Weiguang

Poor diversification

The 3 months correlation between Guangzhou and Hangzhou is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and Hangzhou Weiguang Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Weiguang 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 Hangzhou Weiguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Weiguang has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and Hangzhou Weiguang go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and Hangzhou Weiguang

Assuming the 90 days trading horizon Guangzhou Restaurants Group is expected to under-perform the Hangzhou Weiguang. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Restaurants Group is 1.37 times less risky than Hangzhou Weiguang. The stock trades about -0.03 of its potential returns per unit of risk. The Hangzhou Weiguang Electronic is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,240  in Hangzhou Weiguang Electronic on October 7, 2024 and sell it today you would earn a total of  53.00  from holding Hangzhou Weiguang Electronic or generate 2.37% return on investment over 90 days.

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

Guangzhou Restaurants Group  vs.  Hangzhou Weiguang Electronic

Guangzhou Restaurants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Restaurants Group has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Hangzhou Weiguang

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Weiguang Electronic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hangzhou Weiguang 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 Hangzhou Weiguang

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

The idea behind Guangzhou Restaurants Group and Hangzhou Weiguang Electronic 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.