Correlation Between Beijing HuaYuanYiTong and Daoming OpticsChemical

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

By analyzing existing cross correlation between Beijing HuaYuanYiTong Thermal and Daoming OpticsChemical Co, you can compare the effects of market volatilities on Beijing HuaYuanYiTong and Daoming OpticsChemical 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 HuaYuanYiTong with a short position of Daoming OpticsChemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing HuaYuanYiTong and Daoming OpticsChemical.

Diversification Opportunities for Beijing HuaYuanYiTong and Daoming OpticsChemical

0.28

Correlation Coefficient

Beijing HuaYuanYiTong  Daoming OpticsChemical

Modest diversification

The 3 months correlation between Beijing and Daoming is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Beijing HuaYuanYiTong Thermal and Daoming OpticsChemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daoming OpticsChemical and Beijing HuaYuanYiTong 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 HuaYuanYiTong Thermal are associated (or correlated) with Daoming OpticsChemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daoming OpticsChemical has no effect on the direction of Beijing HuaYuanYiTong i.e., Beijing HuaYuanYiTong and Daoming OpticsChemical go up and down completely randomly.

Pair Corralation between Beijing HuaYuanYiTong and Daoming OpticsChemical

Assuming the 90 days trading horizon Beijing HuaYuanYiTong Thermal is expected to under-perform the Daoming OpticsChemical. But the stock apears to be less risky and, when comparing its historical volatility, Beijing HuaYuanYiTong Thermal is 2.4 times less risky than Daoming OpticsChemical. The stock trades about -0.63 of its potential returns per unit of risk. The Daoming OpticsChemical Co is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  877.00  in Daoming OpticsChemical Co on October 9, 2024 and sell it today you would lose (72.00) from holding Daoming OpticsChemical Co or give up 8.21% of portfolio value over 90 days.

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

Beijing HuaYuanYiTong Thermal  vs.  Daoming OpticsChemical Co

Beijing HuaYuanYiTong

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing HuaYuanYiTong Thermal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Beijing HuaYuanYiTong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Daoming OpticsChemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daoming OpticsChemical Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Daoming OpticsChemical 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 HuaYuanYiTong and Daoming OpticsChemical

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

The idea behind Beijing HuaYuanYiTong Thermal and Daoming OpticsChemical Co 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.