Correlation Between Zhejiang Qianjiang and Guangzhou Automobile

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

By analyzing existing cross correlation between Zhejiang Qianjiang Motorcycle and Guangzhou Automobile Group, you can compare the effects of market volatilities on Zhejiang Qianjiang and Guangzhou Automobile 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 Zhejiang Qianjiang with a short position of Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Qianjiang and Guangzhou Automobile.

Diversification Opportunities for Zhejiang Qianjiang and Guangzhou Automobile

0.74

Correlation Coefficient

Zhejiang Qianjiang  Guangzhou Automobile

Poor diversification

The 3 months correlation between Zhejiang and Guangzhou is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Qianjiang Motorcycle and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile and Zhejiang Qianjiang 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 Zhejiang Qianjiang Motorcycle are associated (or correlated) with Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of Zhejiang Qianjiang i.e., Zhejiang Qianjiang and Guangzhou Automobile go up and down completely randomly.

Pair Corralation between Zhejiang Qianjiang and Guangzhou Automobile

Assuming the 90 days trading horizon Zhejiang Qianjiang is expected to generate 3.34 times less return on investment than Guangzhou Automobile. In addition to that, Zhejiang Qianjiang is 1.23 times more volatile than Guangzhou Automobile Group. It trades about 0.04 of its total potential returns per unit of risk. Guangzhou Automobile Group is currently generating about 0.14 per unit of volatility. If you would invest  725.00  in Guangzhou Automobile Group on September 2, 2024 and sell it today you would earn a total of  159.00  from holding Guangzhou Automobile Group or generate 21.93% return on investment over 90 days.

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

Zhejiang Qianjiang Motorcycle  vs.  Guangzhou Automobile Group

Zhejiang Qianjiang

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Qianjiang Motorcycle are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Qianjiang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guangzhou Automobile

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Automobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Qianjiang and Guangzhou Automobile

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

The idea behind Zhejiang Qianjiang Motorcycle and Guangzhou Automobile Group 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.