Correlation Between New Hope and Beijing Sanyuan

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

By analyzing existing cross correlation between New Hope Dairy and Beijing Sanyuan Foods, you can compare the effects of market volatilities on New Hope and Beijing Sanyuan 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 New Hope with a short position of Beijing Sanyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Hope and Beijing Sanyuan.

Diversification Opportunities for New Hope and Beijing Sanyuan

0.96

Correlation Coefficient

New Hope  Beijing Sanyuan

Almost no diversification

The 3 months correlation between New and Beijing is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding New Hope Dairy and Beijing Sanyuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Sanyuan Foods and New Hope 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 New Hope Dairy are associated (or correlated) with Beijing Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Sanyuan Foods has no effect on the direction of New Hope i.e., New Hope and Beijing Sanyuan go up and down completely randomly.

Pair Corralation between New Hope and Beijing Sanyuan

Assuming the 90 days trading horizon New Hope Dairy is expected to generate 1.58 times more return on investment than Beijing Sanyuan. However, New Hope is 1.58 times more volatile than Beijing Sanyuan Foods. It trades about 0.01 of its potential returns per unit of risk. Beijing Sanyuan Foods is currently generating about -0.02 per unit of risk. If you would invest  1,328  in New Hope Dairy on September 4, 2024 and sell it today you would lose (12.00) from holding New Hope Dairy or give up 0.9% of portfolio value over 90 days.

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

New Hope Dairy  vs.  Beijing Sanyuan Foods

New Hope Dairy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Hope Dairy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, New Hope sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Sanyuan Foods

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Sanyuan Foods are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Hope and Beijing Sanyuan

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

The idea behind New Hope Dairy and Beijing Sanyuan Foods 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.