Correlation Between Beijing Wantai and Guangdong Shenglu

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

Diversification Opportunities for Beijing Wantai and Guangdong Shenglu

0.78

Correlation Coefficient

Beijing Wantai  Guangdong Shenglu

Poor diversification

The 3 months correlation between Beijing and Guangdong is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Wantai Biological and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu 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 Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Beijing Wantai i.e., Beijing Wantai and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Beijing Wantai and Guangdong Shenglu

Assuming the 90 days trading horizon Beijing Wantai Biological is expected to generate 0.77 times more return on investment than Guangdong Shenglu. However, Beijing Wantai Biological is 1.3 times less risky than Guangdong Shenglu. It trades about -0.2 of its potential returns per unit of risk. Guangdong Shenglu Telecommunication is currently generating about -0.19 per unit of risk. If you would invest  7,630  in Beijing Wantai Biological on October 21, 2024 and sell it today you would lose (681.00) from holding Beijing Wantai Biological or give up 8.93% of portfolio value over 90 days.

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

Beijing Wantai Biological  vs.  Guangdong Shenglu Telecommunic

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.

Guangdong Shenglu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Shenglu Telecommunication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Shenglu 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 Guangdong Shenglu

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

The idea behind Beijing Wantai Biological and Guangdong Shenglu Telecommunication 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.