Correlation Between Beijing HuaYuanYiTong and Tianjin Realty

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

Diversification Opportunities for Beijing HuaYuanYiTong and Tianjin Realty

0.29

Correlation Coefficient

Beijing HuaYuanYiTong  Tianjin Realty

Modest diversification

The 3 months correlation between Beijing and Tianjin is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Beijing HuaYuanYiTong Thermal and Tianjin Realty Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Realty Devel 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 Tianjin Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Realty Devel has no effect on the direction of Beijing HuaYuanYiTong i.e., Beijing HuaYuanYiTong and Tianjin Realty go up and down completely randomly.

Pair Corralation between Beijing HuaYuanYiTong and Tianjin Realty

Assuming the 90 days trading horizon Beijing HuaYuanYiTong Thermal is expected to under-perform the Tianjin Realty. But the stock apears to be less risky and, when comparing its historical volatility, Beijing HuaYuanYiTong Thermal is 2.21 times less risky than Tianjin Realty. The stock trades about -0.64 of its potential returns per unit of risk. The Tianjin Realty Development is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  270.00  in Tianjin Realty Development on October 8, 2024 and sell it today you would earn a total of  23.00  from holding Tianjin Realty Development or generate 8.52% return on investment over 90 days.

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

Beijing HuaYuanYiTong Thermal  vs.  Tianjin Realty Development

Beijing HuaYuanYiTong

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing HuaYuanYiTong Thermal has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Tianjin Realty Devel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Realty Development are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Realty sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing HuaYuanYiTong and Tianjin Realty

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

The idea behind Beijing HuaYuanYiTong Thermal and Tianjin Realty Development 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.