Correlation Between Guangzhou Restaurants and Huaibei Mining

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

Diversification Opportunities for Guangzhou Restaurants and Huaibei Mining

0.2

Correlation Coefficient

Guangzhou Restaurants  Huaibei Mining

Modest diversification

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

Pair Corralation between Guangzhou Restaurants and Huaibei Mining

Assuming the 90 days trading horizon Guangzhou Restaurants Group is expected to under-perform the Huaibei Mining. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Restaurants Group is 1.07 times less risky than Huaibei Mining. The stock trades about -0.03 of its potential returns per unit of risk. The Huaibei Mining Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,209  in Huaibei Mining Holdings on September 24, 2024 and sell it today you would earn a total of  183.00  from holding Huaibei Mining Holdings or generate 15.14% return on investment over 90 days.

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

Guangzhou Restaurants Group  vs.  Huaibei Mining Holdings

Guangzhou Restaurants

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Restaurants Group are ranked lower than 11 (%) 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.

Huaibei Mining Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaibei Mining Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Guangzhou Restaurants and Huaibei Mining

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

The idea behind Guangzhou Restaurants Group and Huaibei Mining Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .