Correlation Between Guangzhou Restaurants and Namchow Food

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

Diversification Opportunities for Guangzhou Restaurants and Namchow Food

0.66

Correlation Coefficient

Guangzhou Restaurants  Namchow Food

Poor diversification

The 3 months correlation between Guangzhou and Namchow is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and Namchow Food Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Namchow Food 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 Namchow Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Namchow Food Group has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and Namchow Food go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and Namchow Food

Assuming the 90 days trading horizon Guangzhou Restaurants Group is expected to under-perform the Namchow Food. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Restaurants Group is 1.62 times less risky than Namchow Food. The stock trades about -0.04 of its potential returns per unit of risk. The Namchow Food Group is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,732  in Namchow Food Group on December 25, 2024 and sell it today you would lose (62.00) from holding Namchow Food Group or give up 3.58% of portfolio value over 90 days.

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

Guangzhou Restaurants Group  vs.  Namchow Food Group

Guangzhou Restaurants

Risk-Adjusted Performance

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.

Namchow Food Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Namchow Food Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Namchow Food 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 Namchow Food

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

The idea behind Guangzhou Restaurants Group and Namchow Food 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.