Correlation Between Beijing Jiaman and Shanghai Shibei

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

By analyzing existing cross correlation between Beijing Jiaman Dress and Shanghai Shibei Hi Tech, you can compare the effects of market volatilities on Beijing Jiaman and Shanghai Shibei 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 Jiaman with a short position of Shanghai Shibei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Jiaman and Shanghai Shibei.

Diversification Opportunities for Beijing Jiaman and Shanghai Shibei

0.79

Correlation Coefficient

Beijing Jiaman  Shanghai Shibei

Poor diversification

The 3 months correlation between Beijing and Shanghai is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Jiaman Dress and Shanghai Shibei Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Shibei Hi and Beijing Jiaman 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 Jiaman Dress are associated (or correlated) with Shanghai Shibei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Shibei Hi has no effect on the direction of Beijing Jiaman i.e., Beijing Jiaman and Shanghai Shibei go up and down completely randomly.

Pair Corralation between Beijing Jiaman and Shanghai Shibei

Assuming the 90 days trading horizon Beijing Jiaman Dress is expected to generate 0.75 times more return on investment than Shanghai Shibei. However, Beijing Jiaman Dress is 1.33 times less risky than Shanghai Shibei. It trades about 0.02 of its potential returns per unit of risk. Shanghai Shibei Hi Tech is currently generating about -0.02 per unit of risk. If you would invest  2,082  in Beijing Jiaman Dress on December 26, 2024 and sell it today you would earn a total of  22.00  from holding Beijing Jiaman Dress or generate 1.06% return on investment over 90 days.

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

Beijing Jiaman Dress  vs.  Shanghai Shibei Hi Tech

Beijing Jiaman Dress

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Jiaman Dress are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Beijing Jiaman is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Shibei Hi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Shibei Hi Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shanghai Shibei 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 Jiaman and Shanghai Shibei

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

The idea behind Beijing Jiaman Dress and Shanghai Shibei Hi Tech 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.