Correlation Between Polestar Automotive and Guangzhou Automobile

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

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

Diversification Opportunities for Polestar Automotive and Guangzhou Automobile

-0.27

Correlation Coefficient

Polestar Automotive  Guangzhou Automobile

Very good diversification

The 3 months correlation between Polestar and Guangzhou is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Polestar Automotive Holding and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Polestar Automotive 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 Polestar Automotive Holding 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 Polestar Automotive i.e., Polestar Automotive and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Polestar Automotive and Guangzhou Automobile

Given the investment horizon of 90 days Polestar Automotive Holding is expected to generate 0.83 times more return on investment than Guangzhou Automobile. However, Polestar Automotive Holding is 1.21 times less risky than Guangzhou Automobile. It trades about 0.01 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  108.00  in Polestar Automotive Holding on December 23, 2024 and sell it today you would lose (1.00) from holding Polestar Automotive Holding or give up 0.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Polestar Automotive Holding  vs.  Guangzhou Automobile Group

Polestar Automotive

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Polestar Automotive Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Polestar Automotive is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 Polestar Automotive and Guangzhou Automobile

The main advantage of trading using opposite Polestar Automotive and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polestar Automotive 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 Polestar Automotive Holding 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.