Correlation Between Western Mining and Beijing Kingsoft

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

By analyzing existing cross correlation between Western Mining Co and Beijing Kingsoft Office, you can compare the effects of market volatilities on Western Mining and Beijing Kingsoft 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 Western Mining with a short position of Beijing Kingsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Mining and Beijing Kingsoft.

Diversification Opportunities for Western Mining and Beijing Kingsoft

0.72

Correlation Coefficient

Western Mining  Beijing Kingsoft

Poor diversification

The 3 months correlation between Western and Beijing is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Western Mining Co and Beijing Kingsoft Office in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Kingsoft Office and Western Mining 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 Western Mining Co are associated (or correlated) with Beijing Kingsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Kingsoft Office has no effect on the direction of Western Mining i.e., Western Mining and Beijing Kingsoft go up and down completely randomly.

Pair Corralation between Western Mining and Beijing Kingsoft

Assuming the 90 days trading horizon Western Mining is expected to generate 3.71 times less return on investment than Beijing Kingsoft. But when comparing it to its historical volatility, Western Mining Co is 2.37 times less risky than Beijing Kingsoft. It trades about 0.13 of its potential returns per unit of risk. Beijing Kingsoft Office is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  18,140  in Beijing Kingsoft Office on September 12, 2024 and sell it today you would earn a total of  13,784  from holding Beijing Kingsoft Office or generate 75.99% return on investment over 90 days.

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

Western Mining Co  vs.  Beijing Kingsoft Office

Western Mining

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Mining Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Kingsoft Office

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Kingsoft Office are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Kingsoft sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Mining and Beijing Kingsoft

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

The idea behind Western Mining Co and Beijing Kingsoft Office 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.