Correlation Between Beijing Yanjing and Zhengzhou Coal

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

Diversification Opportunities for Beijing Yanjing and Zhengzhou Coal

0.78

Correlation Coefficient

Beijing Yanjing  Zhengzhou Coal

Poor diversification

The 3 months correlation between Beijing and Zhengzhou is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Yanjing Brewery and Zhengzhou Coal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhengzhou Coal Mining 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 Zhengzhou Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhengzhou Coal Mining has no effect on the direction of Beijing Yanjing i.e., Beijing Yanjing and Zhengzhou Coal go up and down completely randomly.

Pair Corralation between Beijing Yanjing and Zhengzhou Coal

Assuming the 90 days trading horizon Beijing Yanjing is expected to generate 4.07 times less return on investment than Zhengzhou Coal. But when comparing it to its historical volatility, Beijing Yanjing Brewery is 1.34 times less risky than Zhengzhou Coal. It trades about 0.05 of its potential returns per unit of risk. Zhengzhou Coal Mining is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,306  in Zhengzhou Coal Mining on December 27, 2024 and sell it today you would earn a total of  229.00  from holding Zhengzhou Coal Mining or generate 17.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Beijing Yanjing Brewery  vs.  Zhengzhou Coal Mining

Beijing Yanjing Brewery

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Yanjing Brewery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Beijing Yanjing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Zhengzhou Coal Mining

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhengzhou Coal Mining are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhengzhou Coal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Yanjing and Zhengzhou Coal

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

The idea behind Beijing Yanjing Brewery and Zhengzhou Coal Mining 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.