Correlation Between Beijing Sanyuan and Ningbo Tip

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

Diversification Opportunities for Beijing Sanyuan and Ningbo Tip

0.82

Correlation Coefficient

Beijing Sanyuan  Ningbo Tip

Very poor diversification

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

Pair Corralation between Beijing Sanyuan and Ningbo Tip

Assuming the 90 days trading horizon Beijing Sanyuan Foods is expected to generate 0.74 times more return on investment than Ningbo Tip. However, Beijing Sanyuan Foods is 1.35 times less risky than Ningbo Tip. It trades about 0.08 of its potential returns per unit of risk. Ningbo Tip Rubber is currently generating about 0.05 per unit of risk. If you would invest  384.00  in Beijing Sanyuan Foods on September 29, 2024 and sell it today you would earn a total of  79.00  from holding Beijing Sanyuan Foods or generate 20.57% 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.  Ningbo Tip Rubber

Beijing Sanyuan Foods

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Sanyuan Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Ningbo Tip Rubber

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Tip Rubber are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Tip may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Beijing Sanyuan and Ningbo Tip

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

The idea behind Beijing Sanyuan Foods and Ningbo Tip Rubber 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.