Can any of the company-specific risk be diversified away by investing in both Guangzhou Automobile and Aptiv PLC 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 Automobile and Aptiv PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Guangzhou Automobile Group and Aptiv PLC, you can compare the effects of market volatilities on Guangzhou Automobile and Aptiv PLC 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 Automobile with a short position of Aptiv PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Automobile and Aptiv PLC.
Diversification Opportunities for Guangzhou Automobile and Aptiv PLC
The 3 months correlation between Guangzhou and Aptiv is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Automobile Group and Aptiv PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aptiv PLC and Guangzhou Automobile 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 Automobile Group are associated (or correlated) with Aptiv PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aptiv PLC has no effect on the direction of Guangzhou Automobile i.e., Guangzhou Automobile and Aptiv PLC go up and down completely randomly.
Pair Corralation between Guangzhou Automobile and Aptiv PLC
Assuming the 90 days horizon Guangzhou Automobile Group is expected to under-perform the Aptiv PLC. In addition to that, Guangzhou Automobile is 5.08 times more volatile than Aptiv PLC. It trades about -0.03 of its total potential returns per unit of risk. Aptiv PLC is currently generating about 0.02 per unit of volatility. If you would invest 8,440 in Aptiv PLC on March 6, 2024 and sell it today you would earn a total of 25.00 from holding Aptiv PLC or generate 0.3% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Guangzhou Automobile may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in Aptiv PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Aptiv PLC may actually be approaching a critical reversion point that can send shares even higher in July 2024.