Correlation Between Guangdong Jinma and Beijing Kingsoft

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

By analyzing existing cross correlation between Guangdong Jinma Entertainment and Beijing Kingsoft Office, you can compare the effects of market volatilities on Guangdong Jinma and Beijing Kingsoft 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 Guangdong Jinma with a short position of Beijing Kingsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Jinma and Beijing Kingsoft.

Diversification Opportunities for Guangdong Jinma and Beijing Kingsoft

0.81

Correlation Coefficient

Guangdong Jinma  Beijing Kingsoft

Very poor diversification

The 3 months correlation between Guangdong and Beijing is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jinma Entertainment and Beijing Kingsoft Office in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Kingsoft Office and Guangdong Jinma 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 Guangdong Jinma Entertainment are associated (or correlated) with Beijing Kingsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Kingsoft Office has no effect on the direction of Guangdong Jinma i.e., Guangdong Jinma and Beijing Kingsoft go up and down completely randomly.

Pair Corralation between Guangdong Jinma and Beijing Kingsoft

Assuming the 90 days trading horizon Guangdong Jinma is expected to generate 1.83 times less return on investment than Beijing Kingsoft. But when comparing it to its historical volatility, Guangdong Jinma Entertainment is 1.19 times less risky than Beijing Kingsoft. It trades about 0.01 of its potential returns per unit of risk. Beijing Kingsoft Office is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  26,807  in Beijing Kingsoft Office on October 4, 2024 and sell it today you would earn a total of  1,832  from holding Beijing Kingsoft Office or generate 6.83% return on investment over 90 days.

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

Guangdong Jinma Entertainment  vs.  Beijing Kingsoft Office

Guangdong Jinma Ente

Risk-Adjusted Performance

0 of 100

Very Weak

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

Beijing Kingsoft Office

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangdong Jinma and Beijing Kingsoft

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

The idea behind Guangdong Jinma Entertainment and Beijing Kingsoft Office 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.