Correlation Between Guangdong Investment and Western Asset

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

Diversification Opportunities for Guangdong Investment and Western Asset

0.43

Correlation Coefficient

Guangdong Investment  Western Asset

Very weak diversification

The 3 months correlation between Guangdong and Western is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Investment Limited and Western Asset Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Investment 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Investment has no effect on the direction of Guangdong Investment i.e., Guangdong Investment and Western Asset go up and down completely randomly.

Pair Corralation between Guangdong Investment and Western Asset

Assuming the 90 days horizon Guangdong Investment Limited is expected to under-perform the Western Asset. In addition to that, Guangdong Investment is 9.41 times more volatile than Western Asset Investment. It trades about -0.21 of its total potential returns per unit of risk. Western Asset Investment is currently generating about -0.25 per unit of volatility. If you would invest  1,715  in Western Asset Investment on January 20, 2024 and sell it today you would lose (46.00) from holding Western Asset Investment or give up 2.68% of portfolio value over 90 days.

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

Guangdong Investment Limited  vs.  Western Asset Investment

Guangdong Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Western Asset Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Guangdong Investment and Western Asset

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

The idea behind Guangdong Investment Limited and Western Asset Investment 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.