Correlation Between Guangzhou Zhujiang and Aurora Optoelectronics

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

Diversification Opportunities for Guangzhou Zhujiang and Aurora Optoelectronics

0.36

Correlation Coefficient

Guangzhou Zhujiang  Aurora Optoelectronics

Weak diversification

The 3 months correlation between Guangzhou and Aurora is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Zhujiang Brewery and Aurora Optoelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Optoelectronics 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 Aurora Optoelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Optoelectronics has no effect on the direction of Guangzhou Zhujiang i.e., Guangzhou Zhujiang and Aurora Optoelectronics go up and down completely randomly.

Pair Corralation between Guangzhou Zhujiang and Aurora Optoelectronics

Assuming the 90 days trading horizon Guangzhou Zhujiang is expected to generate 11.75 times less return on investment than Aurora Optoelectronics. But when comparing it to its historical volatility, Guangzhou Zhujiang Brewery is 2.65 times less risky than Aurora Optoelectronics. It trades about 0.03 of its potential returns per unit of risk. Aurora Optoelectronics Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  172.00  in Aurora Optoelectronics Co on September 29, 2024 and sell it today you would earn a total of  80.00  from holding Aurora Optoelectronics Co or generate 46.51% 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.  Aurora Optoelectronics 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.

Aurora Optoelectronics

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Guangzhou Zhujiang and Aurora Optoelectronics

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

The idea behind Guangzhou Zhujiang Brewery and Aurora Optoelectronics 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.