Correlation Between Guangdong Investment and Manila Water

Can any of the company-specific risk be diversified away by investing in both Guangdong Investment and Manila Water 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 Manila Water 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 Manila Water, you can compare the effects of market volatilities on Guangdong Investment and Manila Water 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 Manila Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Investment and Manila Water.

Diversification Opportunities for Guangdong Investment and Manila Water

-0.39

Correlation Coefficient

Guangdong Investment  Manila Water

Very good diversification

The 3 months correlation between Guangdong and Manila is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Investment Limited and Manila Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manila Water 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 Manila Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manila Water has no effect on the direction of Guangdong Investment i.e., Guangdong Investment and Manila Water go up and down completely randomly.

Pair Corralation between Guangdong Investment and Manila Water

If you would invest  47.00  in Guangdong Investment Limited on February 4, 2024 and sell it today you would earn a total of  9.50  from holding Guangdong Investment Limited or generate 20.21% return on investment over 90 days.

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

Guangdong Investment Limited  vs.  Manila Water

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 weak basic indicators, Guangdong Investment may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Manila Water

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Manila Water are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Manila Water showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Investment and Manila Water

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

The idea behind Guangdong Investment Limited and Manila Water 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.