Correlation Between Dezhan HealthCare and Guangzhou Dongfang

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

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

Diversification Opportunities for Dezhan HealthCare and Guangzhou Dongfang

0.83

Correlation Coefficient

Dezhan HealthCare  Guangzhou Dongfang

Very poor diversification

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

Pair Corralation between Dezhan HealthCare and Guangzhou Dongfang

Assuming the 90 days trading horizon Dezhan HealthCare Co is expected to generate 1.66 times more return on investment than Guangzhou Dongfang. However, Dezhan HealthCare is 1.66 times more volatile than Guangzhou Dongfang Hotel. It trades about 0.17 of its potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.15 per unit of risk. If you would invest  245.00  in Dezhan HealthCare Co on September 21, 2024 and sell it today you would earn a total of  122.00  from holding Dezhan HealthCare Co or generate 49.8% return on investment over 90 days.

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

Dezhan HealthCare Co  vs.  Guangzhou Dongfang Hotel

Dezhan HealthCare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dezhan HealthCare Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dezhan HealthCare sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 11 (%) 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.

Pair Trading with Dezhan HealthCare and Guangzhou Dongfang

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

The idea behind Dezhan HealthCare Co and Guangzhou Dongfang Hotel 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.