Correlation Between Guangdong Liantai and Elite Color

Can any of the company-specific risk be diversified away by investing in both Guangdong Liantai and Elite Color 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 Elite Color 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 Elite Color Environmental, you can compare the effects of market volatilities on Guangdong Liantai and Elite Color 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 Elite Color. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Liantai and Elite Color.

Diversification Opportunities for Guangdong Liantai and Elite Color

0.97

Correlation Coefficient

Guangdong Liantai  Elite Color

Almost no diversification

The 3 months correlation between Guangdong and Elite is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Elite Color Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Color Environmental 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 Elite Color. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Color Environmental has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Elite Color go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Elite Color

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to under-perform the Elite Color. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Liantai Environmental is 1.11 times less risky than Elite Color. The stock trades about -0.02 of its potential returns per unit of risk. The Elite Color Environmental is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  638.00  in Elite Color Environmental on September 20, 2024 and sell it today you would earn a total of  11.00  from holding Elite Color Environmental or generate 1.72% return on investment over 90 days.

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

Guangdong Liantai Environmenta  vs.  Elite Color Environmental

Guangdong Liantai

Risk-Adjusted Performance

15 of 100

Good

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

Elite Color Environmental

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Color Environmental are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Elite Color sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Liantai and Elite Color

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

The idea behind Guangdong Liantai Environmental and Elite Color Environmental 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.