Correlation Between Guangzhou Zhujiang and National Silicon

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

Diversification Opportunities for Guangzhou Zhujiang and National Silicon

0.72

Correlation Coefficient

Guangzhou Zhujiang  National Silicon

Poor diversification

The 3 months correlation between Guangzhou and National is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Zhujiang Brewery and National Silicon Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Silicon Industry 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 National Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Silicon Industry has no effect on the direction of Guangzhou Zhujiang i.e., Guangzhou Zhujiang and National Silicon go up and down completely randomly.

Pair Corralation between Guangzhou Zhujiang and National Silicon

Assuming the 90 days trading horizon Guangzhou Zhujiang is expected to generate 3.66 times less return on investment than National Silicon. But when comparing it to its historical volatility, Guangzhou Zhujiang Brewery is 2.43 times less risky than National Silicon. It trades about 0.1 of its potential returns per unit of risk. National Silicon Industry is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,354  in National Silicon Industry on September 19, 2024 and sell it today you would earn a total of  729.00  from holding National Silicon Industry or generate 53.84% return on investment over 90 days.

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

Guangzhou Zhujiang Brewery  vs.  National Silicon Industry

Guangzhou Zhujiang

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Zhujiang sustained solid returns over the last few months and may actually be approaching a breakup point.

National Silicon Industry

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Silicon Industry are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Silicon sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Zhujiang and National Silicon

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

The idea behind Guangzhou Zhujiang Brewery and National Silicon Industry 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.