Correlation Between Beijing SPC and Hi Trend

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

Diversification Opportunities for Beijing SPC and Hi Trend

0.85

Correlation Coefficient

Beijing SPC  Hi Trend

Very poor diversification

The 3 months correlation between Beijing and 688391 is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Beijing SPC Environment and Hi Trend TechCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hi Trend TechCo 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 Hi Trend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hi Trend TechCo has no effect on the direction of Beijing SPC i.e., Beijing SPC and Hi Trend go up and down completely randomly.

Pair Corralation between Beijing SPC and Hi Trend

Assuming the 90 days trading horizon Beijing SPC is expected to generate 1.08 times less return on investment than Hi Trend. But when comparing it to its historical volatility, Beijing SPC Environment is 1.88 times less risky than Hi Trend. It trades about 0.21 of its potential returns per unit of risk. Hi Trend TechCo is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,515  in Hi Trend TechCo on September 12, 2024 and sell it today you would earn a total of  809.00  from holding Hi Trend TechCo or generate 32.17% return on investment over 90 days.

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

Beijing SPC Environment  vs.  Hi Trend TechCo

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.

Hi Trend TechCo

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Trend TechCo are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hi Trend sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing SPC and Hi Trend

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

The idea behind Beijing SPC Environment and Hi Trend TechCo 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.