Correlation Between Guangzhou Baiyunshan and Elixinol Wellness

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

By analyzing existing cross correlation between Guangzhou Baiyunshan Pharmaceutical and Elixinol Wellness Limited, you can compare the effects of market volatilities on Guangzhou Baiyunshan and Elixinol Wellness 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 Baiyunshan with a short position of Elixinol Wellness. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Baiyunshan and Elixinol Wellness.

Diversification Opportunities for Guangzhou Baiyunshan and Elixinol Wellness

0.05

Correlation Coefficient

Guangzhou Baiyunshan  Elixinol Wellness

Significant diversification

The 3 months correlation between Guangzhou and Elixinol is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Baiyunshan Pharmaceu and Elixinol Wellness Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elixinol Wellness and Guangzhou Baiyunshan 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 Baiyunshan Pharmaceutical are associated (or correlated) with Elixinol Wellness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elixinol Wellness has no effect on the direction of Guangzhou Baiyunshan i.e., Guangzhou Baiyunshan and Elixinol Wellness go up and down completely randomly.

Pair Corralation between Guangzhou Baiyunshan and Elixinol Wellness

Assuming the 90 days horizon Guangzhou Baiyunshan is expected to generate 356.09 times less return on investment than Elixinol Wellness. But when comparing it to its historical volatility, Guangzhou Baiyunshan Pharmaceutical is 77.15 times less risky than Elixinol Wellness. It trades about 0.05 of its potential returns per unit of risk. Elixinol Wellness Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  0.80  in Elixinol Wellness Limited on September 27, 2024 and sell it today you would earn a total of  1.40  from holding Elixinol Wellness Limited or generate 175.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Guangzhou Baiyunshan Pharmaceu  vs.  Elixinol Wellness Limited

Guangzhou Baiyunshan

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Baiyunshan Pharmaceutical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Guangzhou Baiyunshan reported solid returns over the last few months and may actually be approaching a breakup point.

Elixinol Wellness

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elixinol Wellness Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Elixinol Wellness reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Baiyunshan and Elixinol Wellness

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

The idea behind Guangzhou Baiyunshan Pharmaceutical and Elixinol Wellness 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.