Correlation Between Beijing Kaiwen and Ningbo Homelink

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

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

Diversification Opportunities for Beijing Kaiwen and Ningbo Homelink

0.6

Correlation Coefficient

Beijing Kaiwen  Ningbo Homelink

Poor diversification

The 3 months correlation between Beijing and Ningbo is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Kaiwen Education and Ningbo Homelink Eco iTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Homelink Eco and Beijing Kaiwen 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 Kaiwen Education are associated (or correlated) with Ningbo Homelink. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Homelink Eco has no effect on the direction of Beijing Kaiwen i.e., Beijing Kaiwen and Ningbo Homelink go up and down completely randomly.

Pair Corralation between Beijing Kaiwen and Ningbo Homelink

Assuming the 90 days trading horizon Beijing Kaiwen is expected to generate 1.18 times less return on investment than Ningbo Homelink. In addition to that, Beijing Kaiwen is 1.25 times more volatile than Ningbo Homelink Eco iTech. It trades about 0.05 of its total potential returns per unit of risk. Ningbo Homelink Eco iTech is currently generating about 0.08 per unit of volatility. If you would invest  1,366  in Ningbo Homelink Eco iTech on October 24, 2024 and sell it today you would earn a total of  247.00  from holding Ningbo Homelink Eco iTech or generate 18.08% return on investment over 90 days.

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

Beijing Kaiwen Education  vs.  Ningbo Homelink Eco iTech

Beijing Kaiwen Education

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ningbo Homelink Eco

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Beijing Kaiwen and Ningbo Homelink

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

The idea behind Beijing Kaiwen Education and Ningbo Homelink Eco iTech 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 Global Correlations module to find global opportunities by holding instruments from different markets.