Correlation Between Guangzhou Automobile and BAIC

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

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

Diversification Opportunities for Guangzhou Automobile and BAIC

0.26

Correlation Coefficient

Guangzhou Automobile  BAIC

Modest diversification

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

Pair Corralation between Guangzhou Automobile and BAIC

Assuming the 90 days horizon Guangzhou Automobile Group is expected to generate 1.71 times more return on investment than BAIC. However, Guangzhou Automobile is 1.71 times more volatile than BAIC Motor. It trades about -0.03 of its potential returns per unit of risk. BAIC Motor is currently generating about -0.06 per unit of risk. 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

Guangzhou Automobile Group  vs.  BAIC Motor

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.

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.

Pair Trading with Guangzhou Automobile and BAIC

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

The idea behind Guangzhou Automobile Group and BAIC Motor 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.