Correlation Between Beijing Sanyuan and Liuzhou Chemical

Can any of the company-specific risk be diversified away by investing in both Beijing Sanyuan and Liuzhou Chemical 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 Liuzhou Chemical 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 Liuzhou Chemical Industry, you can compare the effects of market volatilities on Beijing Sanyuan and Liuzhou Chemical 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 Liuzhou Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Sanyuan and Liuzhou Chemical.

Diversification Opportunities for Beijing Sanyuan and Liuzhou Chemical

0.9

Correlation Coefficient

Beijing Sanyuan  Liuzhou Chemical

Almost no diversification

The 3 months correlation between Beijing and Liuzhou is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Sanyuan Foods and Liuzhou Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Chemical Industry 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 Liuzhou Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Chemical Industry has no effect on the direction of Beijing Sanyuan i.e., Beijing Sanyuan and Liuzhou Chemical go up and down completely randomly.

Pair Corralation between Beijing Sanyuan and Liuzhou Chemical

Assuming the 90 days trading horizon Beijing Sanyuan is expected to generate 1.27 times less return on investment than Liuzhou Chemical. But when comparing it to its historical volatility, Beijing Sanyuan Foods is 1.12 times less risky than Liuzhou Chemical. It trades about 0.17 of its potential returns per unit of risk. Liuzhou Chemical Industry is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  227.00  in Liuzhou Chemical Industry on September 23, 2024 and sell it today you would earn a total of  88.00  from holding Liuzhou Chemical Industry or generate 38.77% return on investment over 90 days.

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

Beijing Sanyuan Foods  vs.  Liuzhou Chemical Industry

Beijing Sanyuan Foods

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Sanyuan Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Liuzhou Chemical Industry

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Beijing Sanyuan and Liuzhou Chemical

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

The idea behind Beijing Sanyuan Foods and Liuzhou Chemical Industry 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.