Correlation Between Church Dwight and Guangdong Investment

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

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

Diversification Opportunities for Church Dwight and Guangdong Investment

-0.07

Correlation Coefficient

Church Dwight  Guangdong Investment

Good diversification

The 3 months correlation between Church and Guangdong is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and Church Dwight 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 Church Dwight 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 Church Dwight i.e., Church Dwight and Guangdong Investment go up and down completely randomly.

Pair Corralation between Church Dwight and Guangdong Investment

Considering the 90-day investment horizon Church Dwight is expected to generate 0.71 times more return on investment than Guangdong Investment. However, Church Dwight is 1.4 times less risky than Guangdong Investment. It trades about 0.04 of its potential returns per unit of risk. Guangdong Investment Limited is currently generating about 0.0 per unit of risk. If you would invest  10,514  in Church Dwight on December 21, 2024 and sell it today you would earn a total of  245.50  from holding Church Dwight or generate 2.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Church Dwight  vs.  Guangdong Investment Limited

Church Dwight

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 nearly stable basic indicators, Guangdong Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Church Dwight and Guangdong Investment

The main advantage of trading using opposite Church Dwight and Guangdong Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Church Dwight 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 Church Dwight 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.