Correlation Between Guangdong Investment and ECHO INVESTMENT

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

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

Diversification Opportunities for Guangdong Investment and ECHO INVESTMENT

0.6

Correlation Coefficient

Guangdong Investment  ECHO INVESTMENT

Poor diversification

The 3 months correlation between Guangdong and ECHO is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Investment Limited and ECHO INVESTMENT ZY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECHO INVESTMENT ZY and Guangdong Investment 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 Guangdong Investment Limited are associated (or correlated) with ECHO INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECHO INVESTMENT ZY has no effect on the direction of Guangdong Investment i.e., Guangdong Investment and ECHO INVESTMENT go up and down completely randomly.

Pair Corralation between Guangdong Investment and ECHO INVESTMENT

Assuming the 90 days horizon Guangdong Investment Limited is expected to generate 1.85 times more return on investment than ECHO INVESTMENT. However, Guangdong Investment is 1.85 times more volatile than ECHO INVESTMENT ZY. It trades about -0.02 of its potential returns per unit of risk. ECHO INVESTMENT ZY is currently generating about -0.11 per unit of risk. If you would invest  77.00  in Guangdong Investment Limited on December 21, 2024 and sell it today you would lose (4.00) from holding Guangdong Investment Limited or give up 5.19% of portfolio value over 90 days.

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

Guangdong Investment Limited  vs.  ECHO INVESTMENT ZY

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

ECHO INVESTMENT ZY

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECHO INVESTMENT ZY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Pair Trading with Guangdong Investment and ECHO INVESTMENT

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

The idea behind Guangdong Investment Limited and ECHO INVESTMENT ZY 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.