Correlation Between Beijing Wantai and Guangzhou Seagull

Can any of the company-specific risk be diversified away by investing in both Beijing Wantai and Guangzhou Seagull 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 Guangzhou Seagull 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 Guangzhou Seagull Kitchen, you can compare the effects of market volatilities on Beijing Wantai and Guangzhou Seagull 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 Guangzhou Seagull. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Wantai and Guangzhou Seagull.

Diversification Opportunities for Beijing Wantai and Guangzhou Seagull

0.7

Correlation Coefficient

Beijing Wantai  Guangzhou Seagull

Poor diversification

The 3 months correlation between Beijing and Guangzhou is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Wantai Biological and Guangzhou Seagull Kitchen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Seagull Kitchen 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 Guangzhou Seagull. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Seagull Kitchen has no effect on the direction of Beijing Wantai i.e., Beijing Wantai and Guangzhou Seagull go up and down completely randomly.

Pair Corralation between Beijing Wantai and Guangzhou Seagull

Assuming the 90 days trading horizon Beijing Wantai Biological is expected to under-perform the Guangzhou Seagull. But the stock apears to be less risky and, when comparing its historical volatility, Beijing Wantai Biological is 1.69 times less risky than Guangzhou Seagull. The stock trades about -0.04 of its potential returns per unit of risk. The Guangzhou Seagull Kitchen is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  290.00  in Guangzhou Seagull Kitchen on October 23, 2024 and sell it today you would earn a total of  7.00  from holding Guangzhou Seagull Kitchen or generate 2.41% return on investment over 90 days.

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

Beijing Wantai Biological  vs.  Guangzhou Seagull Kitchen

Beijing Wantai Biological

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, Beijing Wantai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangzhou Seagull Kitchen

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Seagull Kitchen are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Seagull 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 Guangzhou Seagull

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

The idea behind Beijing Wantai Biological and Guangzhou Seagull Kitchen 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .