Correlation Between Guangzhou Restaurants and CNOOC

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

Diversification Opportunities for Guangzhou Restaurants and CNOOC

-0.2

Correlation Coefficient

Guangzhou Restaurants  CNOOC

Good diversification

The 3 months correlation between Guangzhou and CNOOC is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and CNOOC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNOOC Limited 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 CNOOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNOOC Limited has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and CNOOC go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and CNOOC

Assuming the 90 days trading horizon Guangzhou Restaurants Group is expected to generate 1.41 times more return on investment than CNOOC. However, Guangzhou Restaurants is 1.41 times more volatile than CNOOC Limited. It trades about 0.01 of its potential returns per unit of risk. CNOOC Limited is currently generating about 0.02 per unit of risk. If you would invest  1,553  in Guangzhou Restaurants Group on October 22, 2024 and sell it today you would earn a total of  10.00  from holding Guangzhou Restaurants Group or generate 0.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Guangzhou Restaurants Group  vs.  CNOOC Limited

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.

CNOOC Limited

Risk-Adjusted Performance

1 of 100

Insignificant

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

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

The idea behind Guangzhou Restaurants Group and CNOOC Limited 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.