Correlation Between BTG Hotels and Shandong Hongchuang

Can any of the company-specific risk be diversified away by investing in both BTG Hotels and Shandong Hongchuang 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 BTG Hotels and Shandong Hongchuang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BTG Hotels Group and Shandong Hongchuang Aluminum, you can compare the effects of market volatilities on BTG Hotels and Shandong Hongchuang 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 BTG Hotels with a short position of Shandong Hongchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of BTG Hotels and Shandong Hongchuang.

Diversification Opportunities for BTG Hotels and Shandong Hongchuang

0.59

Correlation Coefficient

BTG Hotels  Shandong Hongchuang

Very weak diversification

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

Pair Corralation between BTG Hotels and Shandong Hongchuang

Assuming the 90 days trading horizon BTG Hotels is expected to generate 13.29 times less return on investment than Shandong Hongchuang. But when comparing it to its historical volatility, BTG Hotels Group is 1.59 times less risky than Shandong Hongchuang. It trades about 0.03 of its potential returns per unit of risk. Shandong Hongchuang Aluminum is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  574.00  in Shandong Hongchuang Aluminum on October 9, 2024 and sell it today you would earn a total of  413.00  from holding Shandong Hongchuang Aluminum or generate 71.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

BTG Hotels Group  vs.  Shandong Hongchuang Aluminum

BTG Hotels Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BTG Hotels Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BTG Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Hongchuang

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BTG Hotels and Shandong Hongchuang

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

The idea behind BTG Hotels Group and Shandong Hongchuang Aluminum 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.