Correlation Between Huizhou Desay and Beijing Baolande

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

By analyzing existing cross correlation between Huizhou Desay SV and Beijing Baolande Software, you can compare the effects of market volatilities on Huizhou Desay and Beijing Baolande 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 Huizhou Desay with a short position of Beijing Baolande. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huizhou Desay and Beijing Baolande.

Diversification Opportunities for Huizhou Desay and Beijing Baolande

0.75

Correlation Coefficient

Huizhou Desay  Beijing Baolande

Poor diversification

The 3 months correlation between Huizhou and Beijing is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Huizhou Desay SV and Beijing Baolande Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Baolande Software and Huizhou Desay 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 Huizhou Desay SV are associated (or correlated) with Beijing Baolande. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Baolande Software has no effect on the direction of Huizhou Desay i.e., Huizhou Desay and Beijing Baolande go up and down completely randomly.

Pair Corralation between Huizhou Desay and Beijing Baolande

Assuming the 90 days trading horizon Huizhou Desay SV is expected to generate 0.73 times more return on investment than Beijing Baolande. However, Huizhou Desay SV is 1.37 times less risky than Beijing Baolande. It trades about -0.26 of its potential returns per unit of risk. Beijing Baolande Software is currently generating about -0.38 per unit of risk. If you would invest  11,719  in Huizhou Desay SV on October 6, 2024 and sell it today you would lose (1,521) from holding Huizhou Desay SV or give up 12.98% of portfolio value over 90 days.

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

Huizhou Desay SV  vs.  Beijing Baolande Software

Huizhou Desay SV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huizhou Desay SV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Beijing Baolande Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Huizhou Desay and Beijing Baolande

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

The idea behind Huizhou Desay SV and Beijing Baolande Software 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.