Correlation Between China State and Guangzhou Zhujiang

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

By analyzing existing cross correlation between China State Construction and Guangzhou Zhujiang Brewery, you can compare the effects of market volatilities on China State and Guangzhou Zhujiang 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 China State with a short position of Guangzhou Zhujiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of China State and Guangzhou Zhujiang.

Diversification Opportunities for China State and Guangzhou Zhujiang

0.86

Correlation Coefficient

China State  Guangzhou Zhujiang

Very poor diversification

The 3 months correlation between China and Guangzhou is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction and Guangzhou Zhujiang Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Zhujiang and China State 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 China State Construction are associated (or correlated) with Guangzhou Zhujiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Zhujiang has no effect on the direction of China State i.e., China State and Guangzhou Zhujiang go up and down completely randomly.

Pair Corralation between China State and Guangzhou Zhujiang

Assuming the 90 days trading horizon China State Construction is expected to under-perform the Guangzhou Zhujiang. In addition to that, China State is 1.28 times more volatile than Guangzhou Zhujiang Brewery. It trades about -0.03 of its total potential returns per unit of risk. Guangzhou Zhujiang Brewery is currently generating about -0.01 per unit of volatility. If you would invest  910.00  in Guangzhou Zhujiang Brewery on September 12, 2024 and sell it today you would lose (4.00) from holding Guangzhou Zhujiang Brewery or give up 0.44% of portfolio value over 90 days.

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

China State Construction  vs.  Guangzhou Zhujiang Brewery

China State Construction

Risk-Adjusted Performance

12 of 100

Good

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

Guangzhou Zhujiang

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Zhujiang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China State and Guangzhou Zhujiang

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

The idea behind China State Construction and Guangzhou Zhujiang Brewery 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.