Correlation Between Beijing Wandong and Ningxia Xiaoming

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

By analyzing existing cross correlation between Beijing Wandong Medical and Ningxia Xiaoming Agriculture, you can compare the effects of market volatilities on Beijing Wandong and Ningxia Xiaoming 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 Wandong with a short position of Ningxia Xiaoming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Wandong and Ningxia Xiaoming.

Diversification Opportunities for Beijing Wandong and Ningxia Xiaoming

0.6

Correlation Coefficient

Beijing Wandong  Ningxia Xiaoming

Poor diversification

The 3 months correlation between Beijing and Ningxia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Wandong Medical and Ningxia Xiaoming Agriculture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Xiaoming Agr and Beijing Wandong 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 Wandong Medical are associated (or correlated) with Ningxia Xiaoming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Xiaoming Agr has no effect on the direction of Beijing Wandong i.e., Beijing Wandong and Ningxia Xiaoming go up and down completely randomly.

Pair Corralation between Beijing Wandong and Ningxia Xiaoming

Assuming the 90 days trading horizon Beijing Wandong Medical is expected to under-perform the Ningxia Xiaoming. But the stock apears to be less risky and, when comparing its historical volatility, Beijing Wandong Medical is 1.56 times less risky than Ningxia Xiaoming. The stock trades about -0.02 of its potential returns per unit of risk. The Ningxia Xiaoming Agriculture is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,241  in Ningxia Xiaoming Agriculture on October 4, 2024 and sell it today you would lose (66.00) from holding Ningxia Xiaoming Agriculture or give up 5.32% of portfolio value over 90 days.

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

Beijing Wandong Medical  vs.  Ningxia Xiaoming Agriculture

Beijing Wandong Medical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ningxia Xiaoming Agr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningxia Xiaoming Agriculture has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ningxia Xiaoming 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 Wandong and Ningxia Xiaoming

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

The idea behind Beijing Wandong Medical and Ningxia Xiaoming Agriculture 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.