Correlation Between China Water and Guangdong Investment
Can any of the company-specific risk be diversified away by investing in both China Water 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 China Water and Guangdong Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Water Affairs and Guangdong Investment Limited, you can compare the effects of market volatilities on China Water 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 China Water with a short position of Guangdong Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Water and Guangdong Investment.
Diversification Opportunities for China Water and Guangdong Investment
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Guangdong is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding China Water Affairs and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and China Water 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 Water Affairs 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 China Water i.e., China Water and Guangdong Investment go up and down completely randomly.
Pair Corralation between China Water and Guangdong Investment
Assuming the 90 days trading horizon China Water Affairs is expected to under-perform the Guangdong Investment. In addition to that, China Water is 1.25 times more volatile than Guangdong Investment Limited. It trades about -0.06 of its total potential returns per unit of risk. Guangdong Investment Limited is currently generating about -0.04 per unit of volatility. If you would invest 58.00 in Guangdong Investment Limited on September 4, 2024 and sell it today you would lose (1.00) from holding Guangdong Investment Limited or give up 1.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
China Water Affairs vs. Guangdong Investment Limited
Performance |
| Timeline |
| China Water Affairs |
| Guangdong Investment |
China Water and Guangdong Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Water and Guangdong Investment
The main advantage of trading using opposite China Water and Guangdong Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Water 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.| China Water vs. RETAIL FOOD GROUP | China Water vs. KINGBOARD CHEMICAL | China Water vs. Fast Retailing Co | China Water vs. SCANSOURCE |
| Guangdong Investment vs. United Utilities Group | Guangdong Investment vs. Superior Plus Corp | Guangdong Investment vs. NMI Holdings | Guangdong Investment vs. Origin Agritech |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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