Correlation Between Beijing Kaiwen and Liaoning Dingjide

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

Diversification Opportunities for Beijing Kaiwen and Liaoning Dingjide

0.79

Correlation Coefficient

Beijing Kaiwen  Liaoning Dingjide

Poor diversification

The 3 months correlation between Beijing and Liaoning is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Kaiwen Education and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide 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 Liaoning Dingjide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Dingjide has no effect on the direction of Beijing Kaiwen i.e., Beijing Kaiwen and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Beijing Kaiwen and Liaoning Dingjide

Assuming the 90 days trading horizon Beijing Kaiwen Education is expected to under-perform the Liaoning Dingjide. In addition to that, Beijing Kaiwen is 1.48 times more volatile than Liaoning Dingjide Petrochemical. It trades about -0.08 of its total potential returns per unit of risk. Liaoning Dingjide Petrochemical is currently generating about 0.07 per unit of volatility. If you would invest  2,908  in Liaoning Dingjide Petrochemical on September 26, 2024 and sell it today you would earn a total of  206.00  from holding Liaoning Dingjide Petrochemical or generate 7.08% 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.  Liaoning Dingjide Petrochemica

Beijing Kaiwen Education

Risk-Adjusted Performance

0 of 100

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.

Liaoning Dingjide

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Kaiwen and Liaoning Dingjide

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

The idea behind Beijing Kaiwen Education and Liaoning Dingjide Petrochemical 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.