Correlation Between Beijing Enlight and New China

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

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

Diversification Opportunities for Beijing Enlight and New China

0.49

Correlation Coefficient

Beijing Enlight  New China

Very weak diversification

The 3 months correlation between Beijing and New is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Enlight Media and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and Beijing Enlight 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 Enlight Media are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of Beijing Enlight i.e., Beijing Enlight and New China go up and down completely randomly.

Pair Corralation between Beijing Enlight and New China

Assuming the 90 days trading horizon Beijing Enlight Media is expected to generate 0.91 times more return on investment than New China. However, Beijing Enlight Media is 1.1 times less risky than New China. It trades about 0.04 of its potential returns per unit of risk. New China Life is currently generating about -0.09 per unit of risk. If you would invest  937.00  in Beijing Enlight Media on October 26, 2024 and sell it today you would earn a total of  15.00  from holding Beijing Enlight Media or generate 1.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Beijing Enlight Media  vs.  New China Life

Beijing Enlight Media

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Enlight Media are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Enlight may actually be approaching a critical reversion point that can send shares even higher in February 2025.

New China Life

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days New China Life has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, New China 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 Enlight and New China

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

The idea behind Beijing Enlight Media and New China Life 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..