Correlation Between Beijing Shunxin and Shandong Hongchuang

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

By analyzing existing cross correlation between Beijing Shunxin Agriculture and Shandong Hongchuang Aluminum, you can compare the effects of market volatilities on Beijing Shunxin and Shandong Hongchuang 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 Shunxin with a short position of Shandong Hongchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Shunxin and Shandong Hongchuang.

Diversification Opportunities for Beijing Shunxin and Shandong Hongchuang

-0.28

Correlation Coefficient

Beijing Shunxin  Shandong Hongchuang

Very good diversification

The 3 months correlation between Beijing and Shandong is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Shunxin Agriculture and Shandong Hongchuang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hongchuang and Beijing Shunxin 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 Shunxin Agriculture are associated (or correlated) with Shandong Hongchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hongchuang has no effect on the direction of Beijing Shunxin i.e., Beijing Shunxin and Shandong Hongchuang go up and down completely randomly.

Pair Corralation between Beijing Shunxin and Shandong Hongchuang

Assuming the 90 days trading horizon Beijing Shunxin Agriculture is expected to under-perform the Shandong Hongchuang. But the stock apears to be less risky and, when comparing its historical volatility, Beijing Shunxin Agriculture is 1.89 times less risky than Shandong Hongchuang. The stock trades about -0.19 of its potential returns per unit of risk. The Shandong Hongchuang Aluminum is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  897.00  in Shandong Hongchuang Aluminum on October 22, 2024 and sell it today you would earn a total of  97.00  from holding Shandong Hongchuang Aluminum or generate 10.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Beijing Shunxin Agriculture  vs.  Shandong Hongchuang Aluminum

Beijing Shunxin Agri

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shandong Hongchuang

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Shunxin and Shandong Hongchuang

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

The idea behind Beijing Shunxin Agriculture and Shandong Hongchuang Aluminum 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.