Correlation Between Mengtian Home and Beijing Wandong

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

By analyzing existing cross correlation between Mengtian Home Group and Beijing Wandong Medical, you can compare the effects of market volatilities on Mengtian Home and Beijing Wandong 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 Mengtian Home with a short position of Beijing Wandong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mengtian Home and Beijing Wandong.

Diversification Opportunities for Mengtian Home and Beijing Wandong

0.44

Correlation Coefficient

Mengtian Home  Beijing Wandong

Very weak diversification

The 3 months correlation between Mengtian and Beijing is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Mengtian Home Group and Beijing Wandong Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Wandong Medical and Mengtian Home 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 Mengtian Home Group are associated (or correlated) with Beijing Wandong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Wandong Medical has no effect on the direction of Mengtian Home i.e., Mengtian Home and Beijing Wandong go up and down completely randomly.

Pair Corralation between Mengtian Home and Beijing Wandong

Assuming the 90 days trading horizon Mengtian Home Group is expected to generate 1.25 times more return on investment than Beijing Wandong. However, Mengtian Home is 1.25 times more volatile than Beijing Wandong Medical. It trades about 0.03 of its potential returns per unit of risk. Beijing Wandong Medical is currently generating about -0.04 per unit of risk. If you would invest  1,091  in Mengtian Home Group on October 6, 2024 and sell it today you would earn a total of  28.00  from holding Mengtian Home Group or generate 2.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Mengtian Home Group  vs.  Beijing Wandong Medical

Mengtian Home Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Mengtian Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Beijing Wandong Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing Wandong Medical 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.

Pair Trading with Mengtian Home and Beijing Wandong

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

The idea behind Mengtian Home Group and Beijing Wandong Medical 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.