Correlation Between Industrial and Guangzhou Dongfang

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

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

Diversification Opportunities for Industrial and Guangzhou Dongfang

0.34

Correlation Coefficient

Industrial  Guangzhou Dongfang

Weak diversification

The 3 months correlation between Industrial and Guangzhou is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Guangzhou Dongfang Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Dongfang Hotel and Industrial 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 Industrial and Commercial are associated (or correlated) with Guangzhou Dongfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Dongfang Hotel has no effect on the direction of Industrial i.e., Industrial and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between Industrial and Guangzhou Dongfang

Assuming the 90 days trading horizon Industrial is expected to generate 4.69 times less return on investment than Guangzhou Dongfang. But when comparing it to its historical volatility, Industrial and Commercial is 1.91 times less risky than Guangzhou Dongfang. It trades about 0.07 of its potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  992.00  in Guangzhou Dongfang Hotel on September 5, 2024 and sell it today you would earn a total of  66.00  from holding Guangzhou Dongfang Hotel or generate 6.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Industrial and Commercial  vs.  Guangzhou Dongfang Hotel

Industrial and Commercial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Industrial and Guangzhou Dongfang

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

The idea behind Industrial and Commercial and Guangzhou Dongfang Hotel 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.