Correlation Between Beijing Compass and Guangzhou Dongfang

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

By analyzing existing cross correlation between Beijing Compass Technology and Guangzhou Dongfang Hotel, you can compare the effects of market volatilities on Beijing Compass and Guangzhou Dongfang 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 Compass with a short position of Guangzhou Dongfang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Compass and Guangzhou Dongfang.

Diversification Opportunities for Beijing Compass and Guangzhou Dongfang

0.87

Correlation Coefficient

Beijing Compass  Guangzhou Dongfang

Very poor diversification

The 3 months correlation between Beijing and Guangzhou is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Compass Technology and Guangzhou Dongfang Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Dongfang Hotel and Beijing Compass 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 Compass Technology are associated (or correlated) with Guangzhou Dongfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Dongfang Hotel has no effect on the direction of Beijing Compass i.e., Beijing Compass and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between Beijing Compass and Guangzhou Dongfang

Assuming the 90 days trading horizon Beijing Compass Technology is expected to generate 2.72 times more return on investment than Guangzhou Dongfang. However, Beijing Compass is 2.72 times more volatile than Guangzhou Dongfang Hotel. It trades about 0.24 of its potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about 0.17 per unit of risk. If you would invest  3,661  in Beijing Compass Technology on September 19, 2024 and sell it today you would earn a total of  5,709  from holding Beijing Compass Technology or generate 155.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Beijing Compass Technology  vs.  Guangzhou Dongfang Hotel

Beijing Compass Tech

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Compass Technology are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Compass sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Dongfang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Compass and Guangzhou Dongfang

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

The idea behind Beijing Compass Technology and Guangzhou Dongfang Hotel 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.