Correlation Between China Gold and Yellow Pages

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

By analyzing existing cross correlation between China Gold International and Yellow Pages Limited, you can compare the effects of market volatilities on China Gold and Yellow Pages 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 China Gold with a short position of Yellow Pages. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Gold and Yellow Pages.

Diversification Opportunities for China Gold and Yellow Pages

0.69

Correlation Coefficient

China Gold  Yellow Pages

Poor diversification

The 3 months correlation between China and Yellow is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding China Gold International and Yellow Pages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yellow Pages Limited and China Gold 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 China Gold International are associated (or correlated) with Yellow Pages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yellow Pages Limited has no effect on the direction of China Gold i.e., China Gold and Yellow Pages go up and down completely randomly.

Pair Corralation between China Gold and Yellow Pages

Assuming the 90 days trading horizon China Gold International is expected to under-perform the Yellow Pages. In addition to that, China Gold is 1.71 times more volatile than Yellow Pages Limited. It trades about -0.15 of its total potential returns per unit of risk. Yellow Pages Limited is currently generating about 0.04 per unit of volatility. If you would invest  1,119  in Yellow Pages Limited on September 22, 2024 and sell it today you would earn a total of  12.00  from holding Yellow Pages Limited or generate 1.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

China Gold International  vs.  Yellow Pages Limited

China Gold International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Gold International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, China Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

Yellow Pages Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yellow Pages Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Yellow Pages displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Gold and Yellow Pages

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

The idea behind China Gold International and Yellow Pages 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.