Correlation Between Beijing Shanghai and China State

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

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

Diversification Opportunities for Beijing Shanghai and China State

-0.11

Correlation Coefficient

Beijing Shanghai  China State

Good diversification

The 3 months correlation between Beijing and China is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Shanghai High Speed and China State Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China State Construction and Beijing Shanghai 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 Shanghai High Speed are associated (or correlated) with China State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China State Construction has no effect on the direction of Beijing Shanghai i.e., Beijing Shanghai and China State go up and down completely randomly.

Pair Corralation between Beijing Shanghai and China State

Assuming the 90 days trading horizon Beijing Shanghai High Speed is expected to generate 1.03 times more return on investment than China State. However, Beijing Shanghai is 1.03 times more volatile than China State Construction. It trades about 0.03 of its potential returns per unit of risk. China State Construction is currently generating about -0.14 per unit of risk. If you would invest  562.00  in Beijing Shanghai High Speed on October 21, 2024 and sell it today you would earn a total of  10.00  from holding Beijing Shanghai High Speed or generate 1.78% return on investment over 90 days.

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

Beijing Shanghai High Speed  vs.  China State Construction

Beijing Shanghai High

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Shanghai High Speed are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Beijing Shanghai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Beijing Shanghai and China State

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

The idea behind Beijing Shanghai High Speed and China State Construction 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.