Correlation Between Sichuan Hebang and Beijing Baolande

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

By analyzing existing cross correlation between Sichuan Hebang Biotechnology and Beijing Baolande Software, you can compare the effects of market volatilities on Sichuan Hebang and Beijing Baolande 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 Sichuan Hebang with a short position of Beijing Baolande. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Hebang and Beijing Baolande.

Diversification Opportunities for Sichuan Hebang and Beijing Baolande

0.46

Correlation Coefficient

Sichuan Hebang  Beijing Baolande

Very weak diversification

The 3 months correlation between Sichuan and Beijing is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Beijing Baolande Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Baolande Software and Sichuan Hebang 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 Sichuan Hebang Biotechnology are associated (or correlated) with Beijing Baolande. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Baolande Software has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Beijing Baolande go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Beijing Baolande

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to generate 0.48 times more return on investment than Beijing Baolande. However, Sichuan Hebang Biotechnology is 2.06 times less risky than Beijing Baolande. It trades about -0.37 of its potential returns per unit of risk. Beijing Baolande Software is currently generating about -0.29 per unit of risk. If you would invest  225.00  in Sichuan Hebang Biotechnology on October 11, 2024 and sell it today you would lose (31.00) from holding Sichuan Hebang Biotechnology or give up 13.78% of portfolio value over 90 days.

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

Sichuan Hebang Biotechnology  vs.  Beijing Baolande Software

Sichuan Hebang Biote

Risk-Adjusted Performance

0 of 100

Very Weak

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

Beijing Baolande Software

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Baolande Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Baolande sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Hebang and Beijing Baolande

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

The idea behind Sichuan Hebang Biotechnology and Beijing Baolande Software 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.