Correlation Between Guangzhou Automobile and PACCAR

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

Diversification Opportunities for Guangzhou Automobile and PACCAR

0.13

Correlation Coefficient

Guangzhou Automobile  PACCAR

Average diversification

The 3 months correlation between Guangzhou and PACCAR is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Automobile Group and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Guangzhou Automobile i.e., Guangzhou Automobile and PACCAR go up and down completely randomly.

Pair Corralation between Guangzhou Automobile and PACCAR

Assuming the 90 days horizon Guangzhou Automobile Group is expected to generate 6.6 times more return on investment than PACCAR. However, Guangzhou Automobile is 6.6 times more volatile than PACCAR Inc. It trades about 0.09 of its potential returns per unit of risk. PACCAR Inc is currently generating about 0.05 per unit of risk. If you would invest  40.00  in Guangzhou Automobile Group on March 19, 2024 and sell it today you would earn a total of  2.00  from holding Guangzhou Automobile Group or generate 5.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	58.82%
Values	Daily Returns

Guangzhou Automobile Group  vs.  PACCAR Inc

Guangzhou Automobile

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Automobile Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Guangzhou Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

PACCAR Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PACCAR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Guangzhou Automobile and PACCAR

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

The idea behind Guangzhou Automobile Group and PACCAR Inc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.