Correlation Between Guangdong Liantai and Chongqing Road

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

Diversification Opportunities for Guangdong Liantai and Chongqing Road

0.65

Correlation Coefficient

Guangdong Liantai  Chongqing Road

Poor diversification

The 3 months correlation between Guangdong and Chongqing is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Chongqing Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Road Bridge 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 Chongqing Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Road Bridge has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Chongqing Road go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Chongqing Road

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to generate 0.73 times more return on investment than Chongqing Road. However, Guangdong Liantai Environmental is 1.36 times less risky than Chongqing Road. It trades about -0.08 of its potential returns per unit of risk. Chongqing Road Bridge is currently generating about -0.11 per unit of risk. If you would invest  408.00  in Guangdong Liantai Environmental on October 23, 2024 and sell it today you would lose (11.00) from holding Guangdong Liantai Environmental or give up 2.7% of portfolio value over 90 days.

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

Guangdong Liantai Environmenta  vs.  Chongqing Road Bridge

Guangdong Liantai

Risk-Adjusted Performance

4 of 100

Insignificant

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.

Chongqing Road Bridge

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chongqing Road Bridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Guangdong Liantai and Chongqing Road

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

The idea behind Guangdong Liantai Environmental and Chongqing Road Bridge 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.