Correlation Between Beijing Yanjing and Shanghai Fudan

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

Diversification Opportunities for Beijing Yanjing and Shanghai Fudan

-0.53

Correlation Coefficient

Beijing Yanjing  Shanghai Fudan

Excellent diversification

The 3 months correlation between Beijing and Shanghai is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Yanjing Brewery and Shanghai Fudan Microelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Fudan Micro 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 Shanghai Fudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Fudan Micro has no effect on the direction of Beijing Yanjing i.e., Beijing Yanjing and Shanghai Fudan go up and down completely randomly.

Pair Corralation between Beijing Yanjing and Shanghai Fudan

Assuming the 90 days trading horizon Beijing Yanjing Brewery is expected to generate 0.56 times more return on investment than Shanghai Fudan. However, Beijing Yanjing Brewery is 1.79 times less risky than Shanghai Fudan. It trades about 0.09 of its potential returns per unit of risk. Shanghai Fudan Microelectronics is currently generating about -0.12 per unit of risk. If you would invest  1,050  in Beijing Yanjing Brewery on October 25, 2024 and sell it today you would earn a total of  93.00  from holding Beijing Yanjing Brewery or generate 8.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Beijing Yanjing Brewery  vs.  Shanghai Fudan Microelectronic

Beijing Yanjing Brewery

Risk-Adjusted Performance

7 of 100

Modest

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 February 2025.

Shanghai Fudan Micro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Fudan Microelectronics 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.

Pair Trading with Beijing Yanjing and Shanghai Fudan

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

The idea behind Beijing Yanjing Brewery and Shanghai Fudan Microelectronics 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.