Correlation Between Beijing Bashi and Hengdian Entertainment

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Can any of the company-specific risk be diversified away by investing in both Beijing Bashi and Hengdian Entertainment 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 Bashi and Hengdian Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Beijing Bashi Media and Hengdian Entertainment Co, you can compare the effects of market volatilities on Beijing Bashi and Hengdian Entertainment 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 Bashi with a short position of Hengdian Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Bashi and Hengdian Entertainment.

Diversification Opportunities for Beijing Bashi and Hengdian Entertainment

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Beijing and Hengdian is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Bashi Media and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment and Beijing Bashi 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 Bashi Media are associated (or correlated) with Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Beijing Bashi i.e., Beijing Bashi and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Beijing Bashi and Hengdian Entertainment

Assuming the 90 days trading horizon Beijing Bashi is expected to generate 1.0 times less return on investment than Hengdian Entertainment. But when comparing it to its historical volatility, Beijing Bashi Media is 1.05 times less risky than Hengdian Entertainment. It trades about 0.19 of its potential returns per unit of risk. Hengdian Entertainment Co is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,318  in Hengdian Entertainment Co on September 19, 2024 and sell it today you would earn a total of  225.00  from holding Hengdian Entertainment Co or generate 17.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Beijing Bashi Media  vs.  Hengdian Entertainment Co

 Performance 
       Timeline  
Beijing Bashi Media 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Bashi Media are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Bashi sustained solid returns over the last few months and may actually be approaching a breakup point.
Hengdian Entertainment 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengdian Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Bashi and Hengdian Entertainment Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Beijing Bashi and Hengdian Entertainment

The main advantage of trading using opposite Beijing Bashi and Hengdian Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing Bashi position performs unexpectedly, Hengdian Entertainment 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 Hengdian Entertainment will offset losses from the drop in Hengdian Entertainment's long position.
The idea behind Beijing Bashi Media and Hengdian Entertainment Co 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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