Correlation Between Beijing Sanyuan and Hubei Geoway

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

Diversification Opportunities for Beijing Sanyuan and Hubei Geoway

0.79

Correlation Coefficient

Beijing Sanyuan  Hubei Geoway

Poor diversification

The 3 months correlation between Beijing and Hubei is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Sanyuan Foods and Hubei Geoway Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Geoway Investment 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 Hubei Geoway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Geoway Investment has no effect on the direction of Beijing Sanyuan i.e., Beijing Sanyuan and Hubei Geoway go up and down completely randomly.

Pair Corralation between Beijing Sanyuan and Hubei Geoway

Assuming the 90 days trading horizon Beijing Sanyuan Foods is expected to under-perform the Hubei Geoway. But the stock apears to be less risky and, when comparing its historical volatility, Beijing Sanyuan Foods is 1.43 times less risky than Hubei Geoway. The stock trades about -0.02 of its potential returns per unit of risk. The Hubei Geoway Investment is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  140.00  in Hubei Geoway Investment on October 25, 2024 and sell it today you would earn a total of  7.00  from holding Hubei Geoway Investment or generate 5.0% return on investment over 90 days.

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

Beijing Sanyuan Foods  vs.  Hubei Geoway Investment

Beijing Sanyuan Foods

Risk-Adjusted Performance

0 of 100

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.

Hubei Geoway Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Geoway Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Geoway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Beijing Sanyuan and Hubei Geoway

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

The idea behind Beijing Sanyuan Foods and Hubei Geoway Investment 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.