Correlation Between Dowlais Group and Guangzhou Automobile

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

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

Diversification Opportunities for Dowlais Group and Guangzhou Automobile

0.09

Correlation Coefficient

Dowlais Group  Guangzhou Automobile

Significant diversification

The 3 months correlation between Dowlais and Guangzhou is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Dowlais Group plc and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Dowlais Group 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 Dowlais Group plc 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 Dowlais Group i.e., Dowlais Group and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Dowlais Group and Guangzhou Automobile

Assuming the 90 days horizon Dowlais Group plc is expected to under-perform the Guangzhou Automobile. But the pink sheet apears to be less risky and, when comparing its historical volatility, Dowlais Group plc is 2.0 times less risky than Guangzhou Automobile. The pink sheet trades about -0.01 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  61.00  in Guangzhou Automobile Group on October 23, 2024 and sell it today you would lose (22.00) from holding Guangzhou Automobile Group or give up 36.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.76%
Values	Daily Returns

Dowlais Group plc  vs.  Guangzhou Automobile Group

Dowlais Group plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dowlais Group plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Dowlais Group reported solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Automobile

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Guangzhou Automobile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dowlais Group and Guangzhou Automobile

The main advantage of trading using opposite Dowlais Group and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dowlais Group 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 Dowlais Group plc 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.