Correlation Between ALTRIA and Guangdong Investment

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

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

Diversification Opportunities for ALTRIA and Guangdong Investment

-0.6

Correlation Coefficient

ALTRIA  Guangdong Investment

Excellent diversification

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

Pair Corralation between ALTRIA and Guangdong Investment

Assuming the 90 days trading horizon ALTRIA GROUP INC is expected to under-perform the Guangdong Investment. But the bond apears to be less risky and, when comparing its historical volatility, ALTRIA GROUP INC is 6.13 times less risky than Guangdong Investment. The bond trades about -0.04 of its potential returns per unit of risk. The Guangdong Investment Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  64.00  in Guangdong Investment Limited on October 25, 2024 and sell it today you would earn a total of  16.00  from holding Guangdong Investment Limited or generate 25.0% return on investment over 90 days.

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

ALTRIA GROUP INC  vs.  Guangdong Investment Limited

ALTRIA GROUP INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALTRIA GROUP INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALTRIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Guangdong Investment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Guangdong Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ALTRIA and Guangdong Investment

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

The idea behind ALTRIA GROUP INC and Guangdong Investment 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.