Correlation Between Shanghai Action and Guangzhou Dongfang

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

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

Diversification Opportunities for Shanghai Action and Guangzhou Dongfang

0.38

Correlation Coefficient

Shanghai Action  Guangzhou Dongfang

Weak diversification

The 3 months correlation between Shanghai and Guangzhou is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Action Education 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 Shanghai Action 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 Shanghai Action Education 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 Shanghai Action i.e., Shanghai Action and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between Shanghai Action and Guangzhou Dongfang

Assuming the 90 days trading horizon Shanghai Action is expected to generate 3.97 times less return on investment than Guangzhou Dongfang. In addition to that, Shanghai Action is 1.16 times more volatile than Guangzhou Dongfang Hotel. It trades about 0.02 of its total potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.09 per unit of volatility. If you would invest  885.00  in Guangzhou Dongfang Hotel on September 25, 2024 and sell it today you would earn a total of  120.00  from holding Guangzhou Dongfang Hotel or generate 13.56% return on investment over 90 days.

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

Shanghai Action Education  vs.  Guangzhou Dongfang Hotel

Shanghai Action Education

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Action Education are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Action is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 6 (%) 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 Shanghai Action and Guangzhou Dongfang

The main advantage of trading using opposite Shanghai Action and Guangzhou Dongfang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Action 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 Shanghai Action Education 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.

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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.