Correlation Between DIVERSIFIED ROYALTY and Guangdong Investment

Can any of the company-specific risk be diversified away by investing in both DIVERSIFIED ROYALTY and Guangdong Investment 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 DIVERSIFIED ROYALTY and Guangdong Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DIVERSIFIED ROYALTY and Guangdong Investment Limited, you can compare the effects of market volatilities on DIVERSIFIED ROYALTY and Guangdong Investment 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 DIVERSIFIED ROYALTY with a short position of Guangdong Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of DIVERSIFIED ROYALTY and Guangdong Investment.

Diversification Opportunities for DIVERSIFIED ROYALTY and Guangdong Investment

0.43

Correlation Coefficient

DIVERSIFIED ROYALTY  Guangdong Investment

Very weak diversification

The 3 months correlation between DIVERSIFIED and Guangdong is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding DIVERSIFIED ROYALTY and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of DIVERSIFIED ROYALTY i.e., DIVERSIFIED ROYALTY and Guangdong Investment go up and down completely randomly.

Pair Corralation between DIVERSIFIED ROYALTY and Guangdong Investment

Assuming the 90 days horizon DIVERSIFIED ROYALTY is expected to generate 1.1 times more return on investment than Guangdong Investment. However, DIVERSIFIED ROYALTY is 1.1 times more volatile than Guangdong Investment Limited. It trades about -0.03 of its potential returns per unit of risk. Guangdong Investment Limited is currently generating about -0.06 per unit of risk. If you would invest  188.00  in DIVERSIFIED ROYALTY on December 24, 2024 and sell it today you would lose (15.00) from holding DIVERSIFIED ROYALTY or give up 7.98% of portfolio value over 90 days.

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

DIVERSIFIED ROYALTY  vs.  Guangdong Investment Limited

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

Very Weak

Over the last 90 days DIVERSIFIED ROYALTY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DIVERSIFIED ROYALTY is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Guangdong Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with DIVERSIFIED ROYALTY and Guangdong Investment

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

The idea behind DIVERSIFIED ROYALTY and Guangdong Investment Limited 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.