Correlation Between Beijing Sanyuan and Tianjin Capital

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

Diversification Opportunities for Beijing Sanyuan and Tianjin Capital

0.82

Correlation Coefficient

Beijing Sanyuan  Tianjin Capital

Very poor diversification

The 3 months correlation between Beijing and Tianjin is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Sanyuan Foods and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi 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 Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of Beijing Sanyuan i.e., Beijing Sanyuan and Tianjin Capital go up and down completely randomly.

Pair Corralation between Beijing Sanyuan and Tianjin Capital

Assuming the 90 days trading horizon Beijing Sanyuan Foods is expected to generate 2.58 times more return on investment than Tianjin Capital. However, Beijing Sanyuan is 2.58 times more volatile than Tianjin Capital Environmental. It trades about 0.15 of its potential returns per unit of risk. Tianjin Capital Environmental is currently generating about -0.04 per unit of risk. If you would invest  437.00  in Beijing Sanyuan Foods on September 22, 2024 and sell it today you would earn a total of  43.00  from holding Beijing Sanyuan Foods or generate 9.84% return on investment over 90 days.

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

Beijing Sanyuan Foods  vs.  Tianjin Capital Environmental

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.

Tianjin Capital Envi

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Sanyuan and Tianjin Capital

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

The idea behind Beijing Sanyuan Foods and Tianjin Capital Environmental 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.