Correlation Between Sinocat Environmental and Guangxi Guiguan

Can any of the company-specific risk be diversified away by investing in both Sinocat Environmental and Guangxi Guiguan 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 Sinocat Environmental and Guangxi Guiguan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sinocat Environmental Technology and Guangxi Guiguan Electric, you can compare the effects of market volatilities on Sinocat Environmental and Guangxi Guiguan 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 Sinocat Environmental with a short position of Guangxi Guiguan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinocat Environmental and Guangxi Guiguan.

Diversification Opportunities for Sinocat Environmental and Guangxi Guiguan

0.22

Correlation Coefficient

Sinocat Environmental  Guangxi Guiguan

Modest diversification

The 3 months correlation between Sinocat and Guangxi is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Sinocat Environmental Technolo and Guangxi Guiguan Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangxi Guiguan Electric and Sinocat Environmental 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 Sinocat Environmental Technology are associated (or correlated) with Guangxi Guiguan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangxi Guiguan Electric has no effect on the direction of Sinocat Environmental i.e., Sinocat Environmental and Guangxi Guiguan go up and down completely randomly.

Pair Corralation between Sinocat Environmental and Guangxi Guiguan

Assuming the 90 days trading horizon Sinocat Environmental Technology is expected to generate 3.19 times more return on investment than Guangxi Guiguan. However, Sinocat Environmental is 3.19 times more volatile than Guangxi Guiguan Electric. It trades about 0.03 of its potential returns per unit of risk. Guangxi Guiguan Electric is currently generating about -0.05 per unit of risk. If you would invest  1,878  in Sinocat Environmental Technology on December 26, 2024 and sell it today you would earn a total of  38.00  from holding Sinocat Environmental Technology or generate 2.02% return on investment over 90 days.

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

Sinocat Environmental Technolo  vs.  Guangxi Guiguan Electric

Sinocat Environmental

Risk-Adjusted Performance

Weak

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

Guangxi Guiguan Electric

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sinocat Environmental and Guangxi Guiguan

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

The idea behind Sinocat Environmental Technology and Guangxi Guiguan Electric 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.