Correlation Between Guangzhou Zhujiang and Huafa Industrial

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

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

Diversification Opportunities for Guangzhou Zhujiang and Huafa Industrial

0.2

Correlation Coefficient

Guangzhou Zhujiang  Huafa Industrial

Modest diversification

The 3 months correlation between Guangzhou and Huafa is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Zhujiang Brewery and Huafa Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huafa Industrial and Guangzhou Zhujiang 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 Zhujiang Brewery are associated (or correlated) with Huafa Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huafa Industrial has no effect on the direction of Guangzhou Zhujiang i.e., Guangzhou Zhujiang and Huafa Industrial go up and down completely randomly.

Pair Corralation between Guangzhou Zhujiang and Huafa Industrial

Assuming the 90 days trading horizon Guangzhou Zhujiang Brewery is expected to generate 0.86 times more return on investment than Huafa Industrial. However, Guangzhou Zhujiang Brewery is 1.16 times less risky than Huafa Industrial. It trades about 0.03 of its potential returns per unit of risk. Huafa Industrial Co is currently generating about -0.12 per unit of risk. If you would invest  965.00  in Guangzhou Zhujiang Brewery on October 1, 2024 and sell it today you would earn a total of  22.00  from holding Guangzhou Zhujiang Brewery or generate 2.28% return on investment over 90 days.

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

Guangzhou Zhujiang Brewery  vs.  Huafa Industrial Co

Guangzhou Zhujiang

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Zhujiang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Huafa Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huafa Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Guangzhou Zhujiang and Huafa Industrial

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

The idea behind Guangzhou Zhujiang Brewery and Huafa Industrial Co 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.