Correlation Between Hengdian Entertainment and BTG Hotels

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

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

Diversification Opportunities for Hengdian Entertainment and BTG Hotels

0.61

Correlation Coefficient

Hengdian Entertainment  BTG Hotels

Poor diversification

The 3 months correlation between Hengdian and BTG is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co 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 Hengdian Entertainment 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 Hengdian Entertainment Co 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 Hengdian Entertainment i.e., Hengdian Entertainment and BTG Hotels go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and BTG Hotels

Assuming the 90 days trading horizon Hengdian Entertainment Co is expected to under-perform the BTG Hotels. In addition to that, Hengdian Entertainment is 2.46 times more volatile than BTG Hotels Group. It trades about -0.06 of its total potential returns per unit of risk. BTG Hotels Group is currently generating about -0.06 per unit of volatility. If you would invest  1,493  in BTG Hotels Group on December 25, 2024 and sell it today you would lose (87.00) from holding BTG Hotels Group or give up 5.83% of portfolio value over 90 days.

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

Hengdian Entertainment Co  vs.  BTG Hotels Group

Hengdian Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hengdian Entertainment Co 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

BTG Hotels Group

Risk-Adjusted Performance

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 Hengdian Entertainment and BTG Hotels

The main advantage of trading using opposite Hengdian Entertainment and BTG Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hengdian Entertainment 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 Hengdian Entertainment Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.