Correlation Between Shandong Longquan and BeiGene

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

By analyzing existing cross correlation between Shandong Longquan Pipeline and BeiGene, you can compare the effects of market volatilities on Shandong Longquan and BeiGene 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 Shandong Longquan with a short position of BeiGene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Longquan and BeiGene.

Diversification Opportunities for Shandong Longquan and BeiGene

0.44

Correlation Coefficient

Shandong Longquan  BeiGene

Very weak diversification

The 3 months correlation between Shandong and BeiGene is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longquan Pipeline and BeiGene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BeiGene and Shandong Longquan 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 Shandong Longquan Pipeline are associated (or correlated) with BeiGene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BeiGene has no effect on the direction of Shandong Longquan i.e., Shandong Longquan and BeiGene go up and down completely randomly.

Pair Corralation between Shandong Longquan and BeiGene

Assuming the 90 days trading horizon Shandong Longquan is expected to generate 1.2 times less return on investment than BeiGene. In addition to that, Shandong Longquan is 1.0 times more volatile than BeiGene. It trades about 0.02 of its total potential returns per unit of risk. BeiGene is currently generating about 0.03 per unit of volatility. If you would invest  13,631  in BeiGene on September 22, 2024 and sell it today you would earn a total of  2,491  from holding BeiGene or generate 18.27% return on investment over 90 days.

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

Shandong Longquan Pipeline  vs.  BeiGene

Shandong Longquan

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Longquan Pipeline are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Longquan sustained solid returns over the last few months and may actually be approaching a breakup point.

BeiGene

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BeiGene are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BeiGene sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Longquan and BeiGene

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

The idea behind Shandong Longquan Pipeline and BeiGene 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 Stocks Directory module to find actively traded stocks across global markets.