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

0.37

Correlation Coefficient

Great Wall  Guangzhou Automobile

Weak diversification

The 3 months correlation between Great and Guangzhou is 0.37. 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 generate 0.84 times more return on investment than Guangzhou Automobile. However, Great Wall Motor is 1.19 times less risky than Guangzhou Automobile. It trades about 0.1 of its potential returns per unit of risk. Guangzhou Automobile Group is currently generating about 0.0 per unit of risk. If you would invest  1,703  in Great Wall Motor on December 21, 2024 and sell it today you would earn a total of  317.00  from holding Great Wall Motor or generate 18.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Great Wall Motor  vs.  Guangzhou Automobile Group

Great Wall Motor

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great Wall Motor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Great Wall showed solid returns over the last few months and may actually be approaching a breakup point.

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 nearly stable basic indicators, Guangzhou Automobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.