Correlation Between Beijing SPC and Lingyuan Iron

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

By analyzing existing cross correlation between Beijing SPC Environment and Lingyuan Iron Steel, you can compare the effects of market volatilities on Beijing SPC and Lingyuan Iron 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 SPC with a short position of Lingyuan Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing SPC and Lingyuan Iron.

Diversification Opportunities for Beijing SPC and Lingyuan Iron

0.95

Correlation Coefficient

Beijing SPC  Lingyuan Iron

Almost no diversification

The 3 months correlation between Beijing and Lingyuan is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Beijing SPC Environment and Lingyuan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingyuan Iron Steel and Beijing SPC 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 SPC Environment are associated (or correlated) with Lingyuan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingyuan Iron Steel has no effect on the direction of Beijing SPC i.e., Beijing SPC and Lingyuan Iron go up and down completely randomly.

Pair Corralation between Beijing SPC and Lingyuan Iron

Assuming the 90 days trading horizon Beijing SPC is expected to generate 1.28 times less return on investment than Lingyuan Iron. But when comparing it to its historical volatility, Beijing SPC Environment is 1.36 times less risky than Lingyuan Iron. It trades about 0.21 of its potential returns per unit of risk. Lingyuan Iron Steel is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  142.00  in Lingyuan Iron Steel on September 12, 2024 and sell it today you would earn a total of  65.00  from holding Lingyuan Iron Steel or generate 45.77% return on investment over 90 days.

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

Beijing SPC Environment  vs.  Lingyuan Iron Steel

Beijing SPC Environment

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing SPC Environment are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing SPC sustained solid returns over the last few months and may actually be approaching a breakup point.

Lingyuan Iron Steel

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Beijing SPC and Lingyuan Iron

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

The idea behind Beijing SPC Environment and Lingyuan Iron Steel 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.