Correlation Between Beijing Yanjing and Shaanxi Beiyuan

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

Diversification Opportunities for Beijing Yanjing and Shaanxi Beiyuan

0.73

Correlation Coefficient

Beijing Yanjing  Shaanxi Beiyuan

Poor diversification

The 3 months correlation between Beijing and Shaanxi is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Yanjing Brewery and Shaanxi Beiyuan Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Beiyuan Chemical 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 Shaanxi Beiyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Beiyuan Chemical has no effect on the direction of Beijing Yanjing i.e., Beijing Yanjing and Shaanxi Beiyuan go up and down completely randomly.

Pair Corralation between Beijing Yanjing and Shaanxi Beiyuan

Assuming the 90 days trading horizon Beijing Yanjing Brewery is expected to generate 1.55 times more return on investment than Shaanxi Beiyuan. However, Beijing Yanjing is 1.55 times more volatile than Shaanxi Beiyuan Chemical. It trades about 0.01 of its potential returns per unit of risk. Shaanxi Beiyuan Chemical is currently generating about -0.01 per unit of risk. If you would invest  1,096  in Beijing Yanjing Brewery on September 13, 2024 and sell it today you would lose (14.00) from holding Beijing Yanjing Brewery or give up 1.28% of portfolio value over 90 days.

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

Beijing Yanjing Brewery  vs.  Shaanxi Beiyuan Chemical

Beijing Yanjing Brewery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Yanjing Brewery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Yanjing sustained solid returns over the last few months and may actually be approaching a breakup point.

Shaanxi Beiyuan Chemical

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Beiyuan Chemical are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Beiyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Yanjing and Shaanxi Beiyuan

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

The idea behind Beijing Yanjing Brewery and Shaanxi Beiyuan Chemical 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.