Correlation Between Beijing Wantai and Focus Media

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

By analyzing existing cross correlation between Beijing Wantai Biological and Focus Media Information, you can compare the effects of market volatilities on Beijing Wantai and Focus Media 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 Wantai with a short position of Focus Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Wantai and Focus Media.

Diversification Opportunities for Beijing Wantai and Focus Media

0.42

Correlation Coefficient

Beijing Wantai  Focus Media

Very weak diversification

The 3 months correlation between Beijing and Focus is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Wantai Biological and Focus Media Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Media Information and Beijing Wantai 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 Wantai Biological are associated (or correlated) with Focus Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Media Information has no effect on the direction of Beijing Wantai i.e., Beijing Wantai and Focus Media go up and down completely randomly.

Pair Corralation between Beijing Wantai and Focus Media

Assuming the 90 days trading horizon Beijing Wantai Biological is expected to under-perform the Focus Media. In addition to that, Beijing Wantai is 1.24 times more volatile than Focus Media Information. It trades about -0.08 of its total potential returns per unit of risk. Focus Media Information is currently generating about 0.01 per unit of volatility. If you would invest  703.00  in Focus Media Information on December 25, 2024 and sell it today you would earn a total of  3.00  from holding Focus Media Information or generate 0.43% return on investment over 90 days.

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

Beijing Wantai Biological  vs.  Focus Media Information

Beijing Wantai Biological

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beijing Wantai Biological 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.

Focus Media Information

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Beijing Wantai and Focus Media

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

The idea behind Beijing Wantai Biological and Focus Media Information 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.