Correlation Between BeiGene and Tonghua Grape

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

By analyzing existing cross correlation between BeiGene and Tonghua Grape Wine, you can compare the effects of market volatilities on BeiGene and Tonghua Grape 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 Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of BeiGene and Tonghua Grape.

Diversification Opportunities for BeiGene and Tonghua Grape

-0.49

Correlation Coefficient

BeiGene  Tonghua Grape

Very good diversification

The 3 months correlation between BeiGene and Tonghua is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding BeiGene and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine 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 Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of BeiGene i.e., BeiGene and Tonghua Grape go up and down completely randomly.

Pair Corralation between BeiGene and Tonghua Grape

Assuming the 90 days trading horizon BeiGene is expected to generate 1.03 times more return on investment than Tonghua Grape. However, BeiGene is 1.03 times more volatile than Tonghua Grape Wine. It trades about 0.18 of its potential returns per unit of risk. Tonghua Grape Wine is currently generating about -0.03 per unit of risk. If you would invest  17,600  in BeiGene on November 28, 2024 and sell it today you would earn a total of  4,488  from holding BeiGene or generate 25.5% return on investment over 90 days.

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

BeiGene  vs.  Tonghua Grape Wine

BeiGene

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BeiGene are ranked lower than 14 (%) 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.

Tonghua Grape Wine

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tonghua Grape Wine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tonghua Grape is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BeiGene and Tonghua Grape

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

The idea behind BeiGene and Tonghua Grape Wine 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.