Correlation Between Guangdong Liantai and Guangdong Tianhe

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

Diversification Opportunities for Guangdong Liantai and Guangdong Tianhe

0.91

Correlation Coefficient

Guangdong Liantai  Guangdong Tianhe

Almost no diversification

The 3 months correlation between Guangdong and Guangdong is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Guangdong Tianhe Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Tianhe Agr 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 Guangdong Tianhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Tianhe Agr has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Guangdong Tianhe go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Guangdong Tianhe

Assuming the 90 days trading horizon Guangdong Liantai is expected to generate 1.17 times less return on investment than Guangdong Tianhe. But when comparing it to its historical volatility, Guangdong Liantai Environmental is 1.52 times less risky than Guangdong Tianhe. It trades about 0.03 of its potential returns per unit of risk. Guangdong Tianhe Agricultural is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  580.00  in Guangdong Tianhe Agricultural on October 25, 2024 and sell it today you would earn a total of  12.00  from holding Guangdong Tianhe Agricultural or generate 2.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Guangdong Liantai Environmenta  vs.  Guangdong Tianhe Agricultural

Guangdong Liantai

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Liantai Environmental are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Liantai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangdong Tianhe Agr

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Tianhe Agricultural are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Tianhe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guangdong Liantai and Guangdong Tianhe

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

The idea behind Guangdong Liantai Environmental and Guangdong Tianhe Agricultural 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.