Correlation Between Guangzhou Dongfang and Jiangsu GDK

Can any of the company-specific risk be diversified away by investing in both Guangzhou Dongfang and Jiangsu GDK 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 Jiangsu GDK 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 Jiangsu GDK Biotechnology, you can compare the effects of market volatilities on Guangzhou Dongfang and Jiangsu GDK 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 Jiangsu GDK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Dongfang and Jiangsu GDK.

Diversification Opportunities for Guangzhou Dongfang and Jiangsu GDK

0.81

Correlation Coefficient

Guangzhou Dongfang  Jiangsu GDK

Very poor diversification

The 3 months correlation between Guangzhou and Jiangsu is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Jiangsu GDK Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu GDK Biotechnology 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 Jiangsu GDK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu GDK Biotechnology has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Jiangsu GDK go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Jiangsu GDK

Assuming the 90 days trading horizon Guangzhou Dongfang is expected to generate 2.7 times less return on investment than Jiangsu GDK. But when comparing it to its historical volatility, Guangzhou Dongfang Hotel is 1.69 times less risky than Jiangsu GDK. It trades about 0.04 of its potential returns per unit of risk. Jiangsu GDK Biotechnology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,121  in Jiangsu GDK Biotechnology on September 27, 2024 and sell it today you would earn a total of  145.00  from holding Jiangsu GDK Biotechnology or generate 12.93% return on investment over 90 days.

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

Guangzhou Dongfang Hotel  vs.  Jiangsu GDK Biotechnology

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Dongfang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu GDK Biotechnology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu GDK sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Dongfang and Jiangsu GDK

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

The idea behind Guangzhou Dongfang Hotel and Jiangsu GDK Biotechnology 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.