Correlation Between Guangzhou Restaurants and Gansu Jiu

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

Diversification Opportunities for Guangzhou Restaurants and Gansu Jiu

0.81

Correlation Coefficient

Guangzhou Restaurants  Gansu Jiu

Very poor diversification

The 3 months correlation between Guangzhou and Gansu is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Restaurants Group and Gansu Jiu Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Jiu Steel 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 Gansu Jiu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Jiu Steel has no effect on the direction of Guangzhou Restaurants i.e., Guangzhou Restaurants and Gansu Jiu go up and down completely randomly.

Pair Corralation between Guangzhou Restaurants and Gansu Jiu

Assuming the 90 days trading horizon Guangzhou Restaurants is expected to generate 1.32 times less return on investment than Gansu Jiu. But when comparing it to its historical volatility, Guangzhou Restaurants Group is 1.45 times less risky than Gansu Jiu. It trades about 0.13 of its potential returns per unit of risk. Gansu Jiu Steel is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  130.00  in Gansu Jiu Steel on September 25, 2024 and sell it today you would earn a total of  35.00  from holding Gansu Jiu Steel or generate 26.92% 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.  Gansu Jiu Steel

Guangzhou Restaurants

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Restaurants Group are ranked lower than 10 (%) 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.

Gansu Jiu Steel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Jiu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Restaurants and Gansu Jiu

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

The idea behind Guangzhou Restaurants Group and Gansu Jiu Steel 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.