Correlation Between Guangzhou Restaurants and Shanghai Fudan

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

Diversification Opportunities for Guangzhou Restaurants and Shanghai Fudan

0.7

Correlation Coefficient

Guangzhou Restaurants  Shanghai Fudan

Poor diversification

The 3 months correlation between Guangzhou and Shanghai is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and Shanghai Fudan Microelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Fudan Micro 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 Shanghai Fudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Fudan Micro has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and Shanghai Fudan go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and Shanghai Fudan

Assuming the 90 days trading horizon Guangzhou Restaurants Group is expected to generate 0.65 times more return on investment than Shanghai Fudan. However, Guangzhou Restaurants Group is 1.53 times less risky than Shanghai Fudan. It trades about 0.14 of its potential returns per unit of risk. Shanghai Fudan Microelectronics is currently generating about -0.07 per unit of risk. If you would invest  1,553  in Guangzhou Restaurants Group on September 22, 2024 and sell it today you would earn a total of  182.00  from holding Guangzhou Restaurants Group or generate 11.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.78%
Values	Daily Returns

Guangzhou Restaurants Group  vs.  Shanghai Fudan Microelectronic

Guangzhou Restaurants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Restaurants Group are ranked lower than 13 (%) 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.

Shanghai Fudan Micro

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Guangzhou Restaurants and Shanghai Fudan

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

The idea behind Guangzhou Restaurants Group and Shanghai Fudan Microelectronics 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.