Correlation Between Beijing Mainstreets and Liaoning Chengda

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Can any of the company-specific risk be diversified away by investing in both Beijing Mainstreets and Liaoning Chengda 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 Beijing Mainstreets and Liaoning Chengda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Beijing Mainstreets Investment and Liaoning Chengda Biotechnology, you can compare the effects of market volatilities on Beijing Mainstreets and Liaoning Chengda 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 Beijing Mainstreets with a short position of Liaoning Chengda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Mainstreets and Liaoning Chengda.

Diversification Opportunities for Beijing Mainstreets and Liaoning Chengda

0.32
  Correlation Coefficient

Weak diversification

The 3 months correlation between Beijing and Liaoning is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Mainstreets Investment and Liaoning Chengda Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Chengda Bio and Beijing Mainstreets 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 Beijing Mainstreets Investment are associated (or correlated) with Liaoning Chengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Chengda Bio has no effect on the direction of Beijing Mainstreets i.e., Beijing Mainstreets and Liaoning Chengda go up and down completely randomly.

Pair Corralation between Beijing Mainstreets and Liaoning Chengda

Assuming the 90 days trading horizon Beijing Mainstreets Investment is expected to under-perform the Liaoning Chengda. In addition to that, Beijing Mainstreets is 2.35 times more volatile than Liaoning Chengda Biotechnology. It trades about -0.05 of its total potential returns per unit of risk. Liaoning Chengda Biotechnology is currently generating about -0.04 per unit of volatility. If you would invest  3,291  in Liaoning Chengda Biotechnology on October 5, 2024 and sell it today you would lose (798.00) from holding Liaoning Chengda Biotechnology or give up 24.25% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Beijing Mainstreets Investment  vs.  Liaoning Chengda Biotechnology

 Performance 
       Timeline  
Beijing Mainstreets 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Mainstreets Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Mainstreets sustained solid returns over the last few months and may actually be approaching a breakup point.
Liaoning Chengda Bio 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Liaoning Chengda Biotechnology 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 somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Beijing Mainstreets and Liaoning Chengda Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Beijing Mainstreets and Liaoning Chengda

The main advantage of trading using opposite Beijing Mainstreets and Liaoning Chengda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing Mainstreets position performs unexpectedly, Liaoning Chengda 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 Liaoning Chengda will offset losses from the drop in Liaoning Chengda's long position.
The idea behind Beijing Mainstreets Investment and Liaoning Chengda Biotechnology 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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