Correlation Between American States and Guangdong Investment

Can any of the company-specific risk be diversified away by investing in both American States and Guangdong Investment 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 American States and Guangdong Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American States Water and Guangdong Investment, you can compare the effects of market volatilities on American States and Guangdong Investment 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 American States with a short position of Guangdong Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of American States and Guangdong Investment.

Diversification Opportunities for American States and Guangdong Investment

-0.01

Correlation Coefficient

American States  Guangdong Investment

Good diversification

The 3 months correlation between American and Guangdong is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and Guangdong Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and American States 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 American States Water are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of American States i.e., American States and Guangdong Investment go up and down completely randomly.

Pair Corralation between American States and Guangdong Investment

Considering the 90-day investment horizon American States Water is expected to under-perform the Guangdong Investment. But the stock apears to be less risky and, when comparing its historical volatility, American States Water is 4.94 times less risky than Guangdong Investment. The stock trades about 0.0 of its potential returns per unit of risk. The Guangdong Investment is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,854  in Guangdong Investment on September 15, 2024 and sell it today you would earn a total of  764.00  from holding Guangdong Investment or generate 26.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

American States Water  vs.  Guangdong Investment

American States Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, American States is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Guangdong Investment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Guangdong Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American States and Guangdong Investment

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

The idea behind American States Water and Guangdong Investment 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.