Correlation Between Great Wall and Guangzhou Automobile

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

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

Diversification Opportunities for Great Wall and Guangzhou Automobile

0.05

Correlation Coefficient

Great Wall  Guangzhou Automobile

Significant diversification

The 3 months correlation between Great and Guangzhou is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Great Wall Motor and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Great Wall 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 Great Wall Motor 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 Great Wall i.e., Great Wall and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Great Wall and Guangzhou Automobile

Assuming the 90 days horizon Great Wall Motor is expected to under-perform the Guangzhou Automobile. But the pink sheet apears to be less risky and, when comparing its historical volatility, Great Wall Motor is 1.62 times less risky than Guangzhou Automobile. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Guangzhou Automobile Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  39.00  in Guangzhou Automobile Group on October 8, 2024 and sell it today you would earn a total of  3.00  from holding Guangzhou Automobile Group or generate 7.69% return on investment over 90 days.

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

Great Wall Motor  vs.  Guangzhou Automobile Group

Great Wall Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great Wall Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Guangzhou Automobile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Guangzhou Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great Wall and Guangzhou Automobile

The main advantage of trading using opposite Great Wall and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Wall 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 Great Wall Motor 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.