Correlation Between Beijing Sanyuan and Shanghai Xinhua

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

Diversification Opportunities for Beijing Sanyuan and Shanghai Xinhua

0.74

Correlation Coefficient

Beijing Sanyuan  Shanghai Xinhua

Poor diversification

The 3 months correlation between Beijing and Shanghai is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Sanyuan Foods and Shanghai Xinhua Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Xinhua Media 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 Shanghai Xinhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Xinhua Media has no effect on the direction of Beijing Sanyuan i.e., Beijing Sanyuan and Shanghai Xinhua go up and down completely randomly.

Pair Corralation between Beijing Sanyuan and Shanghai Xinhua

Assuming the 90 days trading horizon Beijing Sanyuan Foods is expected to under-perform the Shanghai Xinhua. But the stock apears to be less risky and, when comparing its historical volatility, Beijing Sanyuan Foods is 1.66 times less risky than Shanghai Xinhua. The stock trades about -0.04 of its potential returns per unit of risk. The Shanghai Xinhua Media is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  688.00  in Shanghai Xinhua Media on December 1, 2024 and sell it today you would earn a total of  4.00  from holding Shanghai Xinhua Media or generate 0.58% 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.  Shanghai Xinhua Media

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.

Shanghai Xinhua Media

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Xinhua Media are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Xinhua is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Beijing Sanyuan and Shanghai Xinhua

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

The idea behind Beijing Sanyuan Foods and Shanghai Xinhua Media 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.