Correlation Between Beijing Yanjing and Hunan Nanling

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

By analyzing existing cross correlation between Beijing Yanjing Brewery and Hunan Nanling Industrial, you can compare the effects of market volatilities on Beijing Yanjing and Hunan Nanling 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 Yanjing with a short position of Hunan Nanling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Yanjing and Hunan Nanling.

Diversification Opportunities for Beijing Yanjing and Hunan Nanling

0.22

Correlation Coefficient

Beijing Yanjing  Hunan Nanling

Modest diversification

The 3 months correlation between Beijing and Hunan is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Yanjing Brewery and Hunan Nanling Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Nanling Industrial and Beijing Yanjing 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 Yanjing Brewery are associated (or correlated) with Hunan Nanling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Nanling Industrial has no effect on the direction of Beijing Yanjing i.e., Beijing Yanjing and Hunan Nanling go up and down completely randomly.

Pair Corralation between Beijing Yanjing and Hunan Nanling

Assuming the 90 days trading horizon Beijing Yanjing Brewery is expected to generate 0.98 times more return on investment than Hunan Nanling. However, Beijing Yanjing Brewery is 1.02 times less risky than Hunan Nanling. It trades about 0.09 of its potential returns per unit of risk. Hunan Nanling Industrial is currently generating about -0.01 per unit of risk. If you would invest  1,138  in Beijing Yanjing Brewery on December 26, 2024 and sell it today you would earn a total of  87.00  from holding Beijing Yanjing Brewery or generate 7.64% return on investment over 90 days.

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

Beijing Yanjing Brewery  vs.  Hunan Nanling Industrial

Beijing Yanjing Brewery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Yanjing Brewery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Yanjing may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hunan Nanling Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hunan Nanling Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hunan Nanling is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Beijing Yanjing and Hunan Nanling

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

The idea behind Beijing Yanjing Brewery and Hunan Nanling Industrial 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.