Correlation Between Guangzhou Restaurants and Jiugui Liquor

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

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

Diversification Opportunities for Guangzhou Restaurants and Jiugui Liquor

0.89

Correlation Coefficient

Guangzhou Restaurants  Jiugui Liquor

Very poor diversification

The 3 months correlation between Guangzhou and Jiugui is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and Jiugui Liquor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiugui Liquor and Guangzhou Restaurants 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 Restaurants Group are associated (or correlated) with Jiugui Liquor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiugui Liquor has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and Jiugui Liquor go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and Jiugui Liquor

Assuming the 90 days trading horizon Guangzhou Restaurants is expected to generate 1.81 times less return on investment than Jiugui Liquor. But when comparing it to its historical volatility, Guangzhou Restaurants Group is 1.44 times less risky than Jiugui Liquor. It trades about 0.21 of its potential returns per unit of risk. Jiugui Liquor Co is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  3,433  in Jiugui Liquor Co on September 14, 2024 and sell it today you would earn a total of  2,756  from holding Jiugui Liquor Co or generate 80.28% return on investment over 90 days.

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

Guangzhou Restaurants Group  vs.  Jiugui Liquor Co

Guangzhou Restaurants

Risk-Adjusted Performance

16 of 100

Good

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

Jiugui Liquor

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jiugui Liquor Co are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiugui Liquor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Restaurants and Jiugui Liquor

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

The idea behind Guangzhou Restaurants Group and Jiugui Liquor Co 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.