Correlation Between Guangzhou Dongfang and Inner Mongolia

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

By analyzing existing cross correlation between Guangzhou Dongfang Hotel and Inner Mongolia Yuan, you can compare the effects of market volatilities on Guangzhou Dongfang and Inner Mongolia 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 Guangzhou Dongfang with a short position of Inner Mongolia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Dongfang and Inner Mongolia.

Diversification Opportunities for Guangzhou Dongfang and Inner Mongolia

0.7

Correlation Coefficient

Guangzhou Dongfang  Inner Mongolia

Poor diversification

The 3 months correlation between Guangzhou and Inner is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Inner Mongolia Yuan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia Yuan and Guangzhou Dongfang 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 Guangzhou Dongfang Hotel are associated (or correlated) with Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia Yuan has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Inner Mongolia go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Inner Mongolia

Assuming the 90 days trading horizon Guangzhou Dongfang Hotel is expected to generate 0.88 times more return on investment than Inner Mongolia. However, Guangzhou Dongfang Hotel is 1.14 times less risky than Inner Mongolia. It trades about 0.16 of its potential returns per unit of risk. Inner Mongolia Yuan is currently generating about 0.12 per unit of risk. If you would invest  831.00  in Guangzhou Dongfang Hotel on September 12, 2024 and sell it today you would earn a total of  199.00  from holding Guangzhou Dongfang Hotel or generate 23.95% return on investment over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Inner Mongolia Yuan

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Dongfang sustained solid returns over the last few months and may actually be approaching a breakup point.

Inner Mongolia Yuan

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia Yuan are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Inner Mongolia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Dongfang and Inner Mongolia

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

The idea behind Guangzhou Dongfang Hotel and Inner Mongolia Yuan 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.