Correlation Between Guangzhou Automobile and Zhangjiagang Freetrade

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

Diversification Opportunities for Guangzhou Automobile and Zhangjiagang Freetrade

0.85

Correlation Coefficient

Guangzhou Automobile  Zhangjiagang Freetrade

Very poor diversification

The 3 months correlation between Guangzhou and Zhangjiagang is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Automobile Group and Zhangjiagang Freetrade Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhangjiagang Freetrade 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 Zhangjiagang Freetrade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhangjiagang Freetrade has no effect on the direction of Guangzhou Automobile i.e., Guangzhou Automobile and Zhangjiagang Freetrade go up and down completely randomly.

Pair Corralation between Guangzhou Automobile and Zhangjiagang Freetrade

Assuming the 90 days trading horizon Guangzhou Automobile is expected to generate 1.03 times less return on investment than Zhangjiagang Freetrade. In addition to that, Guangzhou Automobile is 1.08 times more volatile than Zhangjiagang Freetrade Science. It trades about 0.04 of its total potential returns per unit of risk. Zhangjiagang Freetrade Science is currently generating about 0.04 per unit of volatility. If you would invest  360.00  in Zhangjiagang Freetrade Science on October 1, 2024 and sell it today you would earn a total of  17.00  from holding Zhangjiagang Freetrade Science or generate 4.72% 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.  Zhangjiagang Freetrade Science

Guangzhou Automobile

Risk-Adjusted Performance

2 of 100

Weak

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

Zhangjiagang Freetrade

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhangjiagang Freetrade Science are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhangjiagang Freetrade may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Guangzhou Automobile and Zhangjiagang Freetrade

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

The idea behind Guangzhou Automobile Group and Zhangjiagang Freetrade Science 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.