Correlation Between Guangdong Liantai and Hangzhou Guotai

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

Diversification Opportunities for Guangdong Liantai and Hangzhou Guotai

0.49

Correlation Coefficient

Guangdong Liantai  Hangzhou Guotai

Very weak diversification

The 3 months correlation between Guangdong and Hangzhou is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Hangzhou Guotai Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Guotai Envi 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 Hangzhou Guotai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Guotai Envi has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Hangzhou Guotai go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Hangzhou Guotai

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to under-perform the Hangzhou Guotai. In addition to that, Guangdong Liantai is 1.07 times more volatile than Hangzhou Guotai Environmental. It trades about -0.27 of its total potential returns per unit of risk. Hangzhou Guotai Environmental is currently generating about 0.02 per unit of volatility. If you would invest  3,132  in Hangzhou Guotai Environmental on October 11, 2024 and sell it today you would earn a total of  14.00  from holding Hangzhou Guotai Environmental or generate 0.45% return on investment over 90 days.

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

Guangdong Liantai Environmenta  vs.  Hangzhou Guotai Environmental

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.

Hangzhou Guotai Envi

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Guotai Environmental are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Guotai may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Guangdong Liantai and Hangzhou Guotai

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

The idea behind Guangdong Liantai Environmental and Hangzhou Guotai 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.