Correlation Between Beijing Kingsoft and Chengdu Kanghua

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Can any of the company-specific risk be diversified away by investing in both Beijing Kingsoft and Chengdu Kanghua 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 Kingsoft and Chengdu Kanghua into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Beijing Kingsoft Office and Chengdu Kanghua Biological, you can compare the effects of market volatilities on Beijing Kingsoft and Chengdu Kanghua 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 Kingsoft with a short position of Chengdu Kanghua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Kingsoft and Chengdu Kanghua.

Diversification Opportunities for Beijing Kingsoft and Chengdu Kanghua

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Beijing and Chengdu is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Kingsoft Office and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol and Beijing Kingsoft 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 Kingsoft Office are associated (or correlated) with Chengdu Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of Beijing Kingsoft i.e., Beijing Kingsoft and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between Beijing Kingsoft and Chengdu Kanghua

Assuming the 90 days trading horizon Beijing Kingsoft Office is expected to generate 1.5 times more return on investment than Chengdu Kanghua. However, Beijing Kingsoft is 1.5 times more volatile than Chengdu Kanghua Biological. It trades about -0.04 of its potential returns per unit of risk. Chengdu Kanghua Biological is currently generating about -0.2 per unit of risk. If you would invest  31,686  in Beijing Kingsoft Office on October 5, 2024 and sell it today you would lose (5,020) from holding Beijing Kingsoft Office or give up 15.84% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Beijing Kingsoft Office  vs.  Chengdu Kanghua Biological

 Performance 
       Timeline  
Beijing Kingsoft Office 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Beijing Kingsoft Office 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.
Chengdu Kanghua Biol 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Chengdu Kanghua Biological has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Beijing Kingsoft and Chengdu Kanghua Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Beijing Kingsoft and Chengdu Kanghua

The main advantage of trading using opposite Beijing Kingsoft and Chengdu Kanghua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing Kingsoft position performs unexpectedly, Chengdu Kanghua 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 Chengdu Kanghua will offset losses from the drop in Chengdu Kanghua's long position.
The idea behind Beijing Kingsoft Office and Chengdu Kanghua Biological 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.

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