Correlation Between China State and BTG Hotels

Can any of the company-specific risk be diversified away by investing in both China State and BTG Hotels 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 China State and BTG Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China State Construction and BTG Hotels Group, you can compare the effects of market volatilities on China State and BTG Hotels 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 China State with a short position of BTG Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of China State and BTG Hotels.

Diversification Opportunities for China State and BTG Hotels

-0.19

Correlation Coefficient

China State  BTG Hotels

Good diversification

The 3 months correlation between China and BTG is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction and BTG Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTG Hotels Group and China State 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 China State Construction are associated (or correlated) with BTG Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTG Hotels Group has no effect on the direction of China State i.e., China State and BTG Hotels go up and down completely randomly.

Pair Corralation between China State and BTG Hotels

Assuming the 90 days trading horizon China State Construction is expected to under-perform the BTG Hotels. In addition to that, China State is 1.05 times more volatile than BTG Hotels Group. It trades about -0.05 of its total potential returns per unit of risk. BTG Hotels Group is currently generating about -0.01 per unit of volatility. If you would invest  1,453  in BTG Hotels Group on October 6, 2024 and sell it today you would lose (53.00) from holding BTG Hotels Group or give up 3.65% of portfolio value over 90 days.

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

China State Construction  vs.  BTG Hotels Group

China State Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China State Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

BTG Hotels Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BTG Hotels Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BTG Hotels is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China State and BTG Hotels

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

The idea behind China State Construction and BTG Hotels Group 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.