Correlation Between Beijing Wantai and Gifore Agricultural

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

Diversification Opportunities for Beijing Wantai and Gifore Agricultural

-0.22

Correlation Coefficient

Beijing Wantai  Gifore Agricultural

Very good diversification

The 3 months correlation between Beijing and Gifore is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Wantai Biological and Gifore Agricultural Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gifore Agricultural 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 Gifore Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gifore Agricultural has no effect on the direction of Beijing Wantai i.e., Beijing Wantai and Gifore Agricultural go up and down completely randomly.

Pair Corralation between Beijing Wantai and Gifore Agricultural

Assuming the 90 days trading horizon Beijing Wantai Biological is expected to under-perform the Gifore Agricultural. But the stock apears to be less risky and, when comparing its historical volatility, Beijing Wantai Biological is 1.97 times less risky than Gifore Agricultural. The stock trades about -0.06 of its potential returns per unit of risk. The Gifore Agricultural Machinery is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  501.00  in Gifore Agricultural Machinery on December 1, 2024 and sell it today you would earn a total of  178.00  from holding Gifore Agricultural Machinery or generate 35.53% return on investment over 90 days.

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

Beijing Wantai Biological  vs.  Gifore Agricultural Machinery

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.

Gifore Agricultural

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gifore Agricultural Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gifore Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Wantai and Gifore Agricultural

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

The idea behind Beijing Wantai Biological and Gifore Agricultural Machinery 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..