Correlation Between Guangzhou Baiyunshan and Elanco Animal

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

By analyzing existing cross correlation between Guangzhou Baiyunshan Pharmaceutical and Elanco Animal Health, you can compare the effects of market volatilities on Guangzhou Baiyunshan and Elanco Animal 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 Baiyunshan with a short position of Elanco Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Baiyunshan and Elanco Animal.

Diversification Opportunities for Guangzhou Baiyunshan and Elanco Animal

-0.41

Correlation Coefficient

Guangzhou Baiyunshan  Elanco Animal

Very good diversification

The 3 months correlation between Guangzhou and Elanco is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Baiyunshan Pharmaceu and Elanco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elanco Animal Health and Guangzhou Baiyunshan 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 Baiyunshan Pharmaceutical are associated (or correlated) with Elanco Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elanco Animal Health has no effect on the direction of Guangzhou Baiyunshan i.e., Guangzhou Baiyunshan and Elanco Animal go up and down completely randomly.

Pair Corralation between Guangzhou Baiyunshan and Elanco Animal

Assuming the 90 days horizon Guangzhou Baiyunshan Pharmaceutical is expected to generate 1.13 times more return on investment than Elanco Animal. However, Guangzhou Baiyunshan is 1.13 times more volatile than Elanco Animal Health. It trades about 0.07 of its potential returns per unit of risk. Elanco Animal Health is currently generating about 0.01 per unit of risk. If you would invest  126.00  in Guangzhou Baiyunshan Pharmaceutical on September 16, 2024 and sell it today you would earn a total of  86.00  from holding Guangzhou Baiyunshan Pharmaceutical or generate 68.25% return on investment over 90 days.

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

Guangzhou Baiyunshan Pharmaceu  vs.  Elanco Animal Health

Guangzhou Baiyunshan

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Baiyunshan Pharmaceutical are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Guangzhou Baiyunshan reported solid returns over the last few months and may actually be approaching a breakup point.

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elanco Animal Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Elanco Animal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Guangzhou Baiyunshan and Elanco Animal

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

The idea behind Guangzhou Baiyunshan Pharmaceutical and Elanco Animal Health 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.