Correlation Between Zoomlion Heavy and Guangdong Electric

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

By analyzing existing cross correlation between Zoomlion Heavy Industry and Guangdong Electric Power, you can compare the effects of market volatilities on Zoomlion Heavy and Guangdong Electric 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 Zoomlion Heavy with a short position of Guangdong Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zoomlion Heavy and Guangdong Electric.

Diversification Opportunities for Zoomlion Heavy and Guangdong Electric

0.83

Correlation Coefficient

Zoomlion Heavy  Guangdong Electric

Very poor diversification

The 3 months correlation between Zoomlion and Guangdong is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Zoomlion Heavy Industry and Guangdong Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Electric Power and Zoomlion Heavy 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 Zoomlion Heavy Industry are associated (or correlated) with Guangdong Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Electric Power has no effect on the direction of Zoomlion Heavy i.e., Zoomlion Heavy and Guangdong Electric go up and down completely randomly.

Pair Corralation between Zoomlion Heavy and Guangdong Electric

Assuming the 90 days trading horizon Zoomlion Heavy Industry is expected to generate 2.21 times more return on investment than Guangdong Electric. However, Zoomlion Heavy is 2.21 times more volatile than Guangdong Electric Power. It trades about 0.1 of its potential returns per unit of risk. Guangdong Electric Power is currently generating about 0.1 per unit of risk. If you would invest  610.00  in Zoomlion Heavy Industry on September 23, 2024 and sell it today you would earn a total of  81.00  from holding Zoomlion Heavy Industry or generate 13.28% return on investment over 90 days.

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

Zoomlion Heavy Industry  vs.  Guangdong Electric Power

Zoomlion Heavy Industry

Risk-Adjusted Performance

7 of 100

OK

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

Guangdong Electric Power

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Electric Power are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zoomlion Heavy and Guangdong Electric

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

The idea behind Zoomlion Heavy Industry and Guangdong Electric Power 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.