Correlation Between CHINA HUARONG and GUOTAI JUNAN

Can any of the company-specific risk be diversified away by investing in both CHINA HUARONG and GUOTAI JUNAN 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 CHINA HUARONG and GUOTAI JUNAN into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and GUOTAI JUNAN SEC, you can compare the effects of market volatilities on CHINA HUARONG and GUOTAI JUNAN 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 CHINA HUARONG with a short position of GUOTAI JUNAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and GUOTAI JUNAN.

Diversification Opportunities for CHINA HUARONG and GUOTAI JUNAN

0.5

Correlation Coefficient

CHINA HUARONG  GUOTAI JUNAN

Very weak diversification

The 3 months correlation between CHINA and GUOTAI is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 and GUOTAI JUNAN SEC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GUOTAI JUNAN SEC and CHINA HUARONG 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 CHINA HUARONG ENERHD 50 are associated (or correlated) with GUOTAI JUNAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GUOTAI JUNAN SEC has no effect on the direction of CHINA HUARONG i.e., CHINA HUARONG and GUOTAI JUNAN go up and down completely randomly.

Pair Corralation between CHINA HUARONG and GUOTAI JUNAN

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 4.59 times more return on investment than GUOTAI JUNAN. However, CHINA HUARONG is 4.59 times more volatile than GUOTAI JUNAN SEC. It trades about 0.14 of its potential returns per unit of risk. GUOTAI JUNAN SEC is currently generating about 0.13 per unit of risk. If you would invest  0.05  in CHINA HUARONG ENERHD 50 on September 15, 2024 and sell it today you would earn a total of  0.10  from holding CHINA HUARONG ENERHD 50 or generate 200.0% return on investment over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  GUOTAI JUNAN SEC

CHINA HUARONG ENERHD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

GUOTAI JUNAN SEC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GUOTAI JUNAN SEC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GUOTAI JUNAN reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHINA HUARONG and GUOTAI JUNAN

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

The idea behind CHINA HUARONG ENERHD 50 and GUOTAI JUNAN SEC 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..