Correlation Between Great China and ZongTai Real

Can any of the company-specific risk be diversified away by investing in both Great China and ZongTai Real 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 Great China and ZongTai Real into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Great China Metal and ZongTai Real Estate, you can compare the effects of market volatilities on Great China and ZongTai Real 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 Great China with a short position of ZongTai Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great China and ZongTai Real.

Diversification Opportunities for Great China and ZongTai Real

0.21

Correlation Coefficient

Great China  ZongTai Real

Modest diversification

The 3 months correlation between Great and ZongTai is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal and ZongTai Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZongTai Real Estate and Great China 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 Great China Metal are associated (or correlated) with ZongTai Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZongTai Real Estate has no effect on the direction of Great China i.e., Great China and ZongTai Real go up and down completely randomly.

Pair Corralation between Great China and ZongTai Real

Assuming the 90 days trading horizon Great China Metal is expected to generate 0.19 times more return on investment than ZongTai Real. However, Great China Metal is 5.27 times less risky than ZongTai Real. It trades about -0.06 of its potential returns per unit of risk. ZongTai Real Estate is currently generating about -0.15 per unit of risk. If you would invest  2,300  in Great China Metal on October 11, 2024 and sell it today you would lose (10.00) from holding Great China Metal or give up 0.43% of portfolio value over 90 days.

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

Great China Metal  vs.  ZongTai Real Estate

Great China Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great China Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Great China is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ZongTai Real Estate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ZongTai Real Estate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ZongTai Real may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Great China and ZongTai Real

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

The idea behind Great China Metal and ZongTai Real Estate 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.