Correlation Between China World and Beijing Sanyuan

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

By analyzing existing cross correlation between China World Trade and Beijing Sanyuan Foods, you can compare the effects of market volatilities on China World and Beijing Sanyuan 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 China World with a short position of Beijing Sanyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of China World and Beijing Sanyuan.

Diversification Opportunities for China World and Beijing Sanyuan

0.01

Correlation Coefficient

China World  Beijing Sanyuan

Significant diversification

The 3 months correlation between China and Beijing is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and Beijing Sanyuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Sanyuan Foods and China World 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 China World Trade are associated (or correlated) with Beijing Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Sanyuan Foods has no effect on the direction of China World i.e., China World and Beijing Sanyuan go up and down completely randomly.

Pair Corralation between China World and Beijing Sanyuan

Assuming the 90 days trading horizon China World Trade is expected to generate 1.01 times more return on investment than Beijing Sanyuan. However, China World is 1.01 times more volatile than Beijing Sanyuan Foods. It trades about 0.06 of its potential returns per unit of risk. Beijing Sanyuan Foods is currently generating about 0.0 per unit of risk. If you would invest  1,656  in China World Trade on October 4, 2024 and sell it today you would earn a total of  790.00  from holding China World Trade or generate 47.71% return on investment over 90 days.

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

China World Trade  vs.  Beijing Sanyuan Foods

China World Trade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China World Trade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Beijing Sanyuan Foods

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China World and Beijing Sanyuan

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

The idea behind China World Trade and Beijing Sanyuan Foods 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 Transaction History module to view history of all your transactions and understand their impact on performance.