Correlation Between Beijing Sanyuan and China Merchants

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

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

Diversification Opportunities for Beijing Sanyuan and China Merchants

0.64

Correlation Coefficient

Beijing Sanyuan  China Merchants

Poor diversification

The 3 months correlation between Beijing and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Sanyuan Foods and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou and Beijing Sanyuan 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 Sanyuan Foods are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Shekou has no effect on the direction of Beijing Sanyuan i.e., Beijing Sanyuan and China Merchants go up and down completely randomly.

Pair Corralation between Beijing Sanyuan and China Merchants

Assuming the 90 days trading horizon Beijing Sanyuan Foods is expected to generate 1.59 times more return on investment than China Merchants. However, Beijing Sanyuan is 1.59 times more volatile than China Merchants Shekou. It trades about -0.04 of its potential returns per unit of risk. China Merchants Shekou is currently generating about -0.22 per unit of risk. If you would invest  456.00  in Beijing Sanyuan Foods on December 2, 2024 and sell it today you would lose (31.00) from holding Beijing Sanyuan Foods or give up 6.8% of portfolio value over 90 days.

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

Beijing Sanyuan Foods  vs.  China Merchants Shekou

Beijing Sanyuan Foods

Risk-Adjusted Performance

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.

China Merchants Shekou

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Merchants Shekou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Beijing Sanyuan and China Merchants

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

The idea behind Beijing Sanyuan Foods and China Merchants Shekou 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.