Correlation Between Nanhua Bio and Beijing Compass

Can any of the company-specific risk be diversified away by investing in both Nanhua Bio and Beijing Compass 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 Nanhua Bio and Beijing Compass into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nanhua Bio Medicine and Beijing Compass Technology, you can compare the effects of market volatilities on Nanhua Bio and Beijing Compass 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 Nanhua Bio with a short position of Beijing Compass. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nanhua Bio and Beijing Compass.

Diversification Opportunities for Nanhua Bio and Beijing Compass

0.91

Correlation Coefficient

Nanhua Bio  Beijing Compass

Almost no diversification

The 3 months correlation between Nanhua and Beijing is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Nanhua Bio Medicine and Beijing Compass Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Compass Tech and Nanhua Bio 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 Nanhua Bio Medicine are associated (or correlated) with Beijing Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Compass Tech has no effect on the direction of Nanhua Bio i.e., Nanhua Bio and Beijing Compass go up and down completely randomly.

Pair Corralation between Nanhua Bio and Beijing Compass

Assuming the 90 days trading horizon Nanhua Bio is expected to generate 3.16 times less return on investment than Beijing Compass. But when comparing it to its historical volatility, Nanhua Bio Medicine is 2.13 times less risky than Beijing Compass. It trades about 0.17 of its potential returns per unit of risk. Beijing Compass Technology is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,661  in Beijing Compass Technology on September 19, 2024 and sell it today you would earn a total of  5,746  from holding Beijing Compass Technology or generate 156.95% return on investment over 90 days.

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

Nanhua Bio Medicine  vs.  Beijing Compass Technology

Nanhua Bio Medicine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nanhua Bio Medicine are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanhua Bio sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Compass Tech

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Compass Technology are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Compass sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nanhua Bio and Beijing Compass

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

The idea behind Nanhua Bio Medicine and Beijing Compass Technology 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.