Correlation Between BeiGene and Nanxing Furniture

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

By analyzing existing cross correlation between BeiGene and Nanxing Furniture Machinery, you can compare the effects of market volatilities on BeiGene and Nanxing Furniture 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 BeiGene with a short position of Nanxing Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of BeiGene and Nanxing Furniture.

Diversification Opportunities for BeiGene and Nanxing Furniture

0.84

Correlation Coefficient

BeiGene  Nanxing Furniture

Very poor diversification

The 3 months correlation between BeiGene and Nanxing is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding BeiGene and Nanxing Furniture Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanxing Furniture and BeiGene 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 BeiGene are associated (or correlated) with Nanxing Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanxing Furniture has no effect on the direction of BeiGene i.e., BeiGene and Nanxing Furniture go up and down completely randomly.

Pair Corralation between BeiGene and Nanxing Furniture

Assuming the 90 days trading horizon BeiGene is expected to generate 0.5 times more return on investment than Nanxing Furniture. However, BeiGene is 2.0 times less risky than Nanxing Furniture. It trades about 0.23 of its potential returns per unit of risk. Nanxing Furniture Machinery is currently generating about 0.1 per unit of risk. If you would invest  16,240  in BeiGene on December 26, 2024 and sell it today you would earn a total of  6,018  from holding BeiGene or generate 37.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

BeiGene  vs.  Nanxing Furniture Machinery

BeiGene

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BeiGene are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BeiGene sustained solid returns over the last few months and may actually be approaching a breakup point.

Nanxing Furniture

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanxing Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BeiGene and Nanxing Furniture

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

The idea behind BeiGene and Nanxing Furniture 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.