Correlation Between Geely Automobile and Guangzhou Automobile

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

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

Diversification Opportunities for Geely Automobile and Guangzhou Automobile

0.77

Correlation Coefficient

Geely Automobile  Guangzhou Automobile

Poor diversification

The 3 months correlation between Geely and Guangzhou is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Geely Automobile Holdings and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Geely Automobile 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 Geely Automobile Holdings 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 Geely Automobile i.e., Geely Automobile and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Geely Automobile and Guangzhou Automobile

Assuming the 90 days horizon Geely Automobile is expected to generate 3.81 times less return on investment than Guangzhou Automobile. But when comparing it to its historical volatility, Geely Automobile Holdings is 3.2 times less risky than Guangzhou Automobile. It trades about 0.03 of its potential returns per unit of risk. 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	Significant
Accuracy	85.02%
Values	Daily Returns

Geely Automobile Holdings  vs.  Guangzhou Automobile Group

Geely Automobile Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 Geely Automobile and Guangzhou Automobile

The main advantage of trading using opposite Geely Automobile and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Geely Automobile 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 Geely Automobile Holdings 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.