Correlation Between BAIC and Guangzhou Automobile

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

By analyzing existing cross correlation between BAIC Motor and Guangzhou Automobile Group, you can compare the effects of market volatilities on BAIC and Guangzhou Automobile 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 BAIC with a short position of Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAIC and Guangzhou Automobile.

Diversification Opportunities for BAIC and Guangzhou Automobile

0.26

Correlation Coefficient

BAIC  Guangzhou Automobile

Modest diversification

The 3 months correlation between BAIC and Guangzhou is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BAIC Motor and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and BAIC 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 BAIC Motor are associated (or correlated) with Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of BAIC i.e., BAIC and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between BAIC and Guangzhou Automobile

Assuming the 90 days horizon BAIC Motor is expected to under-perform the Guangzhou Automobile. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAIC Motor is 1.71 times less risky than Guangzhou Automobile. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Guangzhou Automobile Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  44.00  in Guangzhou Automobile Group on December 29, 2024 and sell it today you would lose (7.00) from holding Guangzhou Automobile Group or give up 15.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

BAIC Motor  vs.  Guangzhou Automobile Group

BAIC Motor

Risk-Adjusted Performance

Very Weak

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

Guangzhou Automobile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangzhou Automobile Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal 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 BAIC and Guangzhou Automobile

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

The idea behind BAIC Motor and Guangzhou Automobile Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.