Correlation Between Linzhou Heavy and Tsingtao Brewery

Can any of the company-specific risk be diversified away by investing in both Linzhou Heavy and Tsingtao Brewery 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 Linzhou Heavy and Tsingtao Brewery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Linzhou Heavy Machinery and Tsingtao Brewery Co, you can compare the effects of market volatilities on Linzhou Heavy and Tsingtao Brewery 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 Linzhou Heavy with a short position of Tsingtao Brewery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Linzhou Heavy and Tsingtao Brewery.

Diversification Opportunities for Linzhou Heavy and Tsingtao Brewery

0.76

Correlation Coefficient

Linzhou Heavy  Tsingtao Brewery

Poor diversification

The 3 months correlation between Linzhou and Tsingtao is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Linzhou Heavy Machinery and Tsingtao Brewery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsingtao Brewery and Linzhou Heavy 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 Linzhou Heavy Machinery are associated (or correlated) with Tsingtao Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsingtao Brewery has no effect on the direction of Linzhou Heavy i.e., Linzhou Heavy and Tsingtao Brewery go up and down completely randomly.

Pair Corralation between Linzhou Heavy and Tsingtao Brewery

Assuming the 90 days trading horizon Linzhou Heavy is expected to generate 1.0 times less return on investment than Tsingtao Brewery. But when comparing it to its historical volatility, Linzhou Heavy Machinery is 1.06 times less risky than Tsingtao Brewery. It trades about 0.23 of its potential returns per unit of risk. Tsingtao Brewery Co is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  5,446  in Tsingtao Brewery Co on September 14, 2024 and sell it today you would earn a total of  2,545  from holding Tsingtao Brewery Co or generate 46.73% return on investment over 90 days.

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

Linzhou Heavy Machinery  vs.  Tsingtao Brewery Co

Linzhou Heavy Machinery

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Linzhou Heavy Machinery are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Linzhou Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Tsingtao Brewery

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with Linzhou Heavy and Tsingtao Brewery

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

The idea behind Linzhou Heavy Machinery and Tsingtao Brewery Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.