Correlation Between Weichai Heavy and Guangzhou Jointas

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

By analyzing existing cross correlation between Weichai Heavy Machinery and Guangzhou Jointas Chemical, you can compare the effects of market volatilities on Weichai Heavy and Guangzhou Jointas 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 Weichai Heavy with a short position of Guangzhou Jointas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weichai Heavy and Guangzhou Jointas.

Diversification Opportunities for Weichai Heavy and Guangzhou Jointas

0.89

Correlation Coefficient

Weichai Heavy  Guangzhou Jointas

Very poor diversification

The 3 months correlation between Weichai and Guangzhou is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Heavy Machinery and Guangzhou Jointas Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Jointas and Weichai 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 Weichai Heavy Machinery are associated (or correlated) with Guangzhou Jointas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Jointas has no effect on the direction of Weichai Heavy i.e., Weichai Heavy and Guangzhou Jointas go up and down completely randomly.

Pair Corralation between Weichai Heavy and Guangzhou Jointas

Assuming the 90 days trading horizon Weichai Heavy Machinery is expected to generate 1.31 times more return on investment than Guangzhou Jointas. However, Weichai Heavy is 1.31 times more volatile than Guangzhou Jointas Chemical. It trades about 0.17 of its potential returns per unit of risk. Guangzhou Jointas Chemical is currently generating about 0.17 per unit of risk. If you would invest  889.00  in Weichai Heavy Machinery on September 24, 2024 and sell it today you would earn a total of  420.00  from holding Weichai Heavy Machinery or generate 47.24% return on investment over 90 days.

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

Weichai Heavy Machinery  vs.  Guangzhou Jointas Chemical

Weichai Heavy Machinery

Risk-Adjusted Performance

13 of 100

Good

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

Guangzhou Jointas

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Weichai Heavy and Guangzhou Jointas

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

The idea behind Weichai Heavy Machinery and Guangzhou Jointas Chemical 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.