Correlation Between Guangzhou Fangbang and Bangyan Technology

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

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

Diversification Opportunities for Guangzhou Fangbang and Bangyan Technology

0.35

Correlation Coefficient

Guangzhou Fangbang  Bangyan Technology

Weak diversification

The 3 months correlation between Guangzhou and Bangyan is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Fangbang Electronics and Bangyan Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bangyan Technology and Guangzhou Fangbang 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 Fangbang Electronics are associated (or correlated) with Bangyan Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bangyan Technology has no effect on the direction of Guangzhou Fangbang i.e., Guangzhou Fangbang and Bangyan Technology go up and down completely randomly.

Pair Corralation between Guangzhou Fangbang and Bangyan Technology

Assuming the 90 days trading horizon Guangzhou Fangbang Electronics is expected to under-perform the Bangyan Technology. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Fangbang Electronics is 1.21 times less risky than Bangyan Technology. The stock trades about -0.02 of its potential returns per unit of risk. The Bangyan Technology Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,890  in Bangyan Technology Co on October 1, 2024 and sell it today you would lose (102.00) from holding Bangyan Technology Co or give up 5.4% of portfolio value over 90 days.

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

Guangzhou Fangbang Electronics  vs.  Bangyan Technology Co

Guangzhou Fangbang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Fangbang Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangzhou Fangbang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bangyan Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bangyan Technology Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bangyan Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guangzhou Fangbang and Bangyan Technology

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

The idea behind Guangzhou Fangbang Electronics and Bangyan Technology 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.