Correlation Between Gelsenwasser and China Water

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

By analyzing existing cross correlation between Gelsenwasser AG and China Water Affairs, you can compare the effects of market volatilities on Gelsenwasser and China Water 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 Gelsenwasser with a short position of China Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gelsenwasser and China Water.

Diversification Opportunities for Gelsenwasser and China Water

-0.31

Correlation Coefficient

Gelsenwasser  China Water

Very good diversification

The 3 months correlation between Gelsenwasser and China is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Gelsenwasser AG and China Water Affairs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Affairs and Gelsenwasser 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 Gelsenwasser AG are associated (or correlated) with China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Affairs has no effect on the direction of Gelsenwasser i.e., Gelsenwasser and China Water go up and down completely randomly.

Pair Corralation between Gelsenwasser and China Water

Assuming the 90 days horizon Gelsenwasser AG is expected to under-perform the China Water. But the stock apears to be less risky and, when comparing its historical volatility, Gelsenwasser AG is 1.24 times less risky than China Water. The stock trades about -0.01 of its potential returns per unit of risk. The China Water Affairs is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  56.00  in China Water Affairs on September 21, 2024 and sell it today you would earn a total of  3.00  from holding China Water Affairs or generate 5.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Gelsenwasser AG  vs.  China Water Affairs

Gelsenwasser AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gelsenwasser AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Gelsenwasser is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Water Affairs

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Water Affairs are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, China Water reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gelsenwasser and China Water

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

The idea behind Gelsenwasser AG and China Water Affairs 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.