Correlation Between China Building and Guangdong Transtek

Can any of the company-specific risk be diversified away by investing in both China Building and Guangdong Transtek 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 China Building and Guangdong Transtek into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Building Material and Guangdong Transtek Medical, you can compare the effects of market volatilities on China Building and Guangdong Transtek 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 China Building with a short position of Guangdong Transtek. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Building and Guangdong Transtek.

Diversification Opportunities for China Building and Guangdong Transtek

0.77

Correlation Coefficient

China Building  Guangdong Transtek

Poor diversification

The 3 months correlation between China and Guangdong is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Building Material and Guangdong Transtek Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Transtek and China Building 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 China Building Material are associated (or correlated) with Guangdong Transtek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Transtek has no effect on the direction of China Building i.e., China Building and Guangdong Transtek go up and down completely randomly.

Pair Corralation between China Building and Guangdong Transtek

Assuming the 90 days trading horizon China Building Material is expected to under-perform the Guangdong Transtek. But the stock apears to be less risky and, when comparing its historical volatility, China Building Material is 1.73 times less risky than Guangdong Transtek. The stock trades about -0.04 of its potential returns per unit of risk. The Guangdong Transtek Medical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  971.00  in Guangdong Transtek Medical on October 11, 2024 and sell it today you would earn a total of  267.00  from holding Guangdong Transtek Medical or generate 27.5% return on investment over 90 days.

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

China Building Material  vs.  Guangdong Transtek Medical

China Building Material

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Building Material are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Building may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Guangdong Transtek

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Transtek Medical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Transtek may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Building and Guangdong Transtek

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

The idea behind China Building Material and Guangdong Transtek Medical 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.