Correlation Between Allied Machinery and Guosheng Financial

Can any of the company-specific risk be diversified away by investing in both Allied Machinery and Guosheng Financial 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 Allied Machinery and Guosheng Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Allied Machinery Co and Guosheng Financial Holding, you can compare the effects of market volatilities on Allied Machinery and Guosheng Financial 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 Allied Machinery with a short position of Guosheng Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Machinery and Guosheng Financial.

Diversification Opportunities for Allied Machinery and Guosheng Financial

0.24

Correlation Coefficient

Allied Machinery  Guosheng Financial

Modest diversification

The 3 months correlation between Allied and Guosheng is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Allied Machinery Co and Guosheng Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guosheng Financial and Allied Machinery 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 Allied Machinery Co are associated (or correlated) with Guosheng Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guosheng Financial has no effect on the direction of Allied Machinery i.e., Allied Machinery and Guosheng Financial go up and down completely randomly.

Pair Corralation between Allied Machinery and Guosheng Financial

Assuming the 90 days trading horizon Allied Machinery Co is expected to generate 1.67 times more return on investment than Guosheng Financial. However, Allied Machinery is 1.67 times more volatile than Guosheng Financial Holding. It trades about 0.1 of its potential returns per unit of risk. Guosheng Financial Holding is currently generating about 0.01 per unit of risk. If you would invest  1,587  in Allied Machinery Co on December 26, 2024 and sell it today you would earn a total of  378.00  from holding Allied Machinery Co or generate 23.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Allied Machinery Co  vs.  Guosheng Financial Holding

Allied Machinery

Risk-Adjusted Performance

OK

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

Guosheng Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guosheng Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guosheng Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Allied Machinery and Guosheng Financial

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

The idea behind Allied Machinery Co and Guosheng Financial Holding 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.