Correlation Between Beijing Compass and Hubeiyichang Transportation

Can any of the company-specific risk be diversified away by investing in both Beijing Compass and Hubeiyichang Transportation 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 Hubeiyichang Transportation 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 Hubeiyichang Transportation Group, you can compare the effects of market volatilities on Beijing Compass and Hubeiyichang Transportation 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 Hubeiyichang Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Compass and Hubeiyichang Transportation.

Diversification Opportunities for Beijing Compass and Hubeiyichang Transportation

0.59

Correlation Coefficient

Beijing Compass  Hubeiyichang Transportation

Very weak diversification

The 3 months correlation between Beijing and Hubeiyichang is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Compass Technology and Hubeiyichang Transportation Gr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubeiyichang Transportation 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 Hubeiyichang Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubeiyichang Transportation has no effect on the direction of Beijing Compass i.e., Beijing Compass and Hubeiyichang Transportation go up and down completely randomly.

Pair Corralation between Beijing Compass and Hubeiyichang Transportation

Assuming the 90 days trading horizon Beijing Compass Technology is expected to generate 2.46 times more return on investment than Hubeiyichang Transportation. However, Beijing Compass is 2.46 times more volatile than Hubeiyichang Transportation Group. It trades about 0.05 of its potential returns per unit of risk. Hubeiyichang Transportation Group is currently generating about 0.01 per unit of risk. If you would invest  5,336  in Beijing Compass Technology on October 4, 2024 and sell it today you would earn a total of  4,259  from holding Beijing Compass Technology or generate 79.82% return on investment over 90 days.

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

Beijing Compass Technology  vs.  Hubeiyichang Transportation Gr

Beijing Compass Tech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Compass Technology are ranked lower than 3 (%) 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.

Hubeiyichang Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubeiyichang Transportation Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hubeiyichang Transportation 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 Compass and Hubeiyichang Transportation

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

The idea behind Beijing Compass Technology and Hubeiyichang Transportation Group 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.