Correlation Between Beijing Compass and Hubei Xingfa

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

Diversification Opportunities for Beijing Compass and Hubei Xingfa

0.48

Correlation Coefficient

Beijing Compass  Hubei Xingfa

Very weak diversification

The 3 months correlation between Beijing and Hubei is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Compass Technology and Hubei Xingfa Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Xingfa Chemicals 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 Hubei Xingfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Xingfa Chemicals has no effect on the direction of Beijing Compass i.e., Beijing Compass and Hubei Xingfa go up and down completely randomly.

Pair Corralation between Beijing Compass and Hubei Xingfa

Assuming the 90 days trading horizon Beijing Compass Technology is expected to under-perform the Hubei Xingfa. In addition to that, Beijing Compass is 2.98 times more volatile than Hubei Xingfa Chemicals. It trades about -0.25 of its total potential returns per unit of risk. Hubei Xingfa Chemicals is currently generating about -0.27 per unit of volatility. If you would invest  2,276  in Hubei Xingfa Chemicals on October 11, 2024 and sell it today you would lose (154.00) from holding Hubei Xingfa Chemicals or give up 6.77% of portfolio value over 90 days.

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

Beijing Compass Technology  vs.  Hubei Xingfa Chemicals

Beijing Compass Tech

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Compass Technology are ranked lower than 4 (%) 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.

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubei Xingfa Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hubei Xingfa 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 Hubei Xingfa

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

The idea behind Beijing Compass Technology and Hubei Xingfa Chemicals 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.