Correlation Between Beijing Yanjing and Chengdu Xuguang

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

Diversification Opportunities for Beijing Yanjing and Chengdu Xuguang

0.16

Correlation Coefficient

Beijing Yanjing  Chengdu Xuguang

Average diversification

The 3 months correlation between Beijing and Chengdu is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Yanjing Brewery and Chengdu Xuguang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xuguang Elec 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 Chengdu Xuguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xuguang Elec has no effect on the direction of Beijing Yanjing i.e., Beijing Yanjing and Chengdu Xuguang go up and down completely randomly.

Pair Corralation between Beijing Yanjing and Chengdu Xuguang

Assuming the 90 days trading horizon Beijing Yanjing is expected to generate 1.24 times less return on investment than Chengdu Xuguang. But when comparing it to its historical volatility, Beijing Yanjing Brewery is 1.79 times less risky than Chengdu Xuguang. It trades about 0.07 of its potential returns per unit of risk. Chengdu Xuguang Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  773.00  in Chengdu Xuguang Electronics on December 26, 2024 and sell it today you would earn a total of  49.00  from holding Chengdu Xuguang Electronics or generate 6.34% return on investment over 90 days.

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

Beijing Yanjing Brewery  vs.  Chengdu Xuguang Electronics

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 5 (%) 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.

Chengdu Xuguang Elec

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xuguang Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xuguang may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Beijing Yanjing and Chengdu Xuguang

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

The idea behind Beijing Yanjing Brewery and Chengdu Xuguang Electronics 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.