Correlation Between Cofco Biochemical and Beijing Kaiwen

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

By analyzing existing cross correlation between Cofco Biochemical Anhui and Beijing Kaiwen Education, you can compare the effects of market volatilities on Cofco Biochemical and Beijing Kaiwen 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 Cofco Biochemical with a short position of Beijing Kaiwen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cofco Biochemical and Beijing Kaiwen.

Diversification Opportunities for Cofco Biochemical and Beijing Kaiwen

0.74

Correlation Coefficient

Cofco Biochemical  Beijing Kaiwen

Poor diversification

The 3 months correlation between Cofco and Beijing is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cofco Biochemical Anhui and Beijing Kaiwen Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Kaiwen Education and Cofco Biochemical 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 Cofco Biochemical Anhui are associated (or correlated) with Beijing Kaiwen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Kaiwen Education has no effect on the direction of Cofco Biochemical i.e., Cofco Biochemical and Beijing Kaiwen go up and down completely randomly.

Pair Corralation between Cofco Biochemical and Beijing Kaiwen

Assuming the 90 days trading horizon Cofco Biochemical Anhui is expected to under-perform the Beijing Kaiwen. But the stock apears to be less risky and, when comparing its historical volatility, Cofco Biochemical Anhui is 1.38 times less risky than Beijing Kaiwen. The stock trades about -0.01 of its potential returns per unit of risk. The Beijing Kaiwen Education is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  465.00  in Beijing Kaiwen Education on December 24, 2024 and sell it today you would lose (2.00) from holding Beijing Kaiwen Education or give up 0.43% of portfolio value over 90 days.

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

Cofco Biochemical Anhui  vs.  Beijing Kaiwen Education

Cofco Biochemical Anhui

Risk-Adjusted Performance

Very Weak

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

Beijing Kaiwen Education

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Cofco Biochemical and Beijing Kaiwen

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

The idea behind Cofco Biochemical Anhui and Beijing Kaiwen Education 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 Transaction History module to view history of all your transactions and understand their impact on performance.