Correlation Between Guangdong Investment and Diamond Estates

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

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

Diversification Opportunities for Guangdong Investment and Diamond Estates

-0.01

Correlation Coefficient

Guangdong Investment  Diamond Estates

Good diversification

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

Pair Corralation between Guangdong Investment and Diamond Estates

Assuming the 90 days horizon Guangdong Investment Limited is expected to generate 0.82 times more return on investment than Diamond Estates. However, Guangdong Investment Limited is 1.22 times less risky than Diamond Estates. It trades about -0.02 of its potential returns per unit of risk. Diamond Estates Wines is currently generating about -0.09 per unit of risk. If you would invest  95.00  in Guangdong Investment Limited on March 7, 2024 and sell it today you would lose (33.00) from holding Guangdong Investment Limited or give up 34.74% of portfolio value over 90 days.

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

Guangdong Investment Limited  vs.  Diamond Estates Wines

Guangdong Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Guangdong Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Diamond Estates Wines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Estates Wines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Diamond Estates may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Guangdong Investment and Diamond Estates

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

The idea behind Guangdong Investment Limited and Diamond Estates Wines 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.