Correlation Between Zhengzhou Coal and Guangzhou Haige

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

By analyzing existing cross correlation between Zhengzhou Coal Mining and Guangzhou Haige Communications, you can compare the effects of market volatilities on Zhengzhou Coal and Guangzhou Haige 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 Zhengzhou Coal with a short position of Guangzhou Haige. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhengzhou Coal and Guangzhou Haige.

Diversification Opportunities for Zhengzhou Coal and Guangzhou Haige

0.76

Correlation Coefficient

Zhengzhou Coal  Guangzhou Haige

Poor diversification

The 3 months correlation between Zhengzhou and Guangzhou is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Zhengzhou Coal Mining and Guangzhou Haige Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Haige Comm and Zhengzhou Coal 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 Zhengzhou Coal Mining are associated (or correlated) with Guangzhou Haige. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Haige Comm has no effect on the direction of Zhengzhou Coal i.e., Zhengzhou Coal and Guangzhou Haige go up and down completely randomly.

Pair Corralation between Zhengzhou Coal and Guangzhou Haige

Assuming the 90 days trading horizon Zhengzhou Coal Mining is expected to generate 0.77 times more return on investment than Guangzhou Haige. However, Zhengzhou Coal Mining is 1.3 times less risky than Guangzhou Haige. It trades about 0.03 of its potential returns per unit of risk. Guangzhou Haige Communications is currently generating about 0.01 per unit of risk. If you would invest  1,165  in Zhengzhou Coal Mining on September 14, 2024 and sell it today you would earn a total of  128.00  from holding Zhengzhou Coal Mining or generate 10.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.62%
Values	Daily Returns

Zhengzhou Coal Mining  vs.  Guangzhou Haige Communications

Zhengzhou Coal Mining

Risk-Adjusted Performance

12 of 100

Good

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

Guangzhou Haige Comm

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Haige Communications are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Haige sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhengzhou Coal and Guangzhou Haige

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

The idea behind Zhengzhou Coal Mining and Guangzhou Haige Communications 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.