Correlation Between Guangdong Liantai and ZTE Corp

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

By analyzing existing cross correlation between Guangdong Liantai Environmental and ZTE Corp, you can compare the effects of market volatilities on Guangdong Liantai and ZTE Corp 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 Guangdong Liantai with a short position of ZTE Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Liantai and ZTE Corp.

Diversification Opportunities for Guangdong Liantai and ZTE Corp

0.15

Correlation Coefficient

Guangdong Liantai  ZTE Corp

Average diversification

The 3 months correlation between Guangdong and ZTE is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and ZTE Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZTE Corp and Guangdong Liantai 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 Guangdong Liantai Environmental are associated (or correlated) with ZTE Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZTE Corp has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and ZTE Corp go up and down completely randomly.

Pair Corralation between Guangdong Liantai and ZTE Corp

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to under-perform the ZTE Corp. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Liantai Environmental is 1.79 times less risky than ZTE Corp. The stock trades about -0.27 of its potential returns per unit of risk. The ZTE Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,113  in ZTE Corp on October 11, 2024 and sell it today you would earn a total of  430.00  from holding ZTE Corp or generate 13.81% return on investment over 90 days.

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

Guangdong Liantai Environmenta  vs.  ZTE Corp

Guangdong Liantai

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Liantai may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ZTE Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZTE Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ZTE Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Liantai and ZTE Corp

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

The idea behind Guangdong Liantai Environmental and ZTE Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.