Correlation Between Liuzhou Iron and Beijing Yanjing

Can any of the company-specific risk be diversified away by investing in both Liuzhou Iron and Beijing Yanjing 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 Liuzhou Iron and Beijing Yanjing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liuzhou Iron Steel and Beijing Yanjing Brewery, you can compare the effects of market volatilities on Liuzhou Iron and Beijing Yanjing 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 Liuzhou Iron with a short position of Beijing Yanjing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liuzhou Iron and Beijing Yanjing.

Diversification Opportunities for Liuzhou Iron and Beijing Yanjing

0.51

Correlation Coefficient

Liuzhou Iron  Beijing Yanjing

Very weak diversification

The 3 months correlation between Liuzhou and Beijing is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Liuzhou Iron Steel and Beijing Yanjing Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Yanjing Brewery and Liuzhou Iron 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 Liuzhou Iron Steel are associated (or correlated) with Beijing Yanjing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Yanjing Brewery has no effect on the direction of Liuzhou Iron i.e., Liuzhou Iron and Beijing Yanjing go up and down completely randomly.

Pair Corralation between Liuzhou Iron and Beijing Yanjing

Assuming the 90 days trading horizon Liuzhou Iron Steel is expected to generate 1.4 times more return on investment than Beijing Yanjing. However, Liuzhou Iron is 1.4 times more volatile than Beijing Yanjing Brewery. It trades about 0.11 of its potential returns per unit of risk. Beijing Yanjing Brewery is currently generating about 0.07 per unit of risk. If you would invest  284.00  in Liuzhou Iron Steel on December 26, 2024 and sell it today you would earn a total of  37.00  from holding Liuzhou Iron Steel or generate 13.03% return on investment over 90 days.

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

Liuzhou Iron Steel  vs.  Beijing Yanjing Brewery

Liuzhou Iron Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Iron Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Yanjing Brewery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Yanjing Brewery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Yanjing may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Liuzhou Iron and Beijing Yanjing

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

The idea behind Liuzhou Iron Steel and Beijing Yanjing Brewery 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.