Correlation Between Guangzhou Automobile and Changchun Faway

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

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

Diversification Opportunities for Guangzhou Automobile and Changchun Faway

0.87

Correlation Coefficient

Guangzhou Automobile  Changchun Faway

Very poor diversification

The 3 months correlation between Guangzhou and Changchun is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Automobile Group and Changchun Faway Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun Faway Auto and Guangzhou Automobile 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 Automobile Group are associated (or correlated) with Changchun Faway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun Faway Auto has no effect on the direction of Guangzhou Automobile i.e., Guangzhou Automobile and Changchun Faway go up and down completely randomly.

Pair Corralation between Guangzhou Automobile and Changchun Faway

Assuming the 90 days trading horizon Guangzhou Automobile Group is expected to generate 1.34 times more return on investment than Changchun Faway. However, Guangzhou Automobile is 1.34 times more volatile than Changchun Faway Automobile. It trades about 0.17 of its potential returns per unit of risk. Changchun Faway Automobile is currently generating about 0.2 per unit of risk. If you would invest  724.00  in Guangzhou Automobile Group on September 12, 2024 and sell it today you would earn a total of  240.00  from holding Guangzhou Automobile Group or generate 33.15% return on investment over 90 days.

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

Guangzhou Automobile Group  vs.  Changchun Faway Automobile

Guangzhou Automobile

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 13 (%) 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.

Changchun Faway Auto

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun Faway Automobile are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun Faway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Automobile and Changchun Faway

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

The idea behind Guangzhou Automobile Group and Changchun Faway Automobile 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.