Correlation Between Beijing Enterprises and Essential Utilities

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

By analyzing existing cross correlation between Beijing Enterprises Water and Essential Utilities, you can compare the effects of market volatilities on Beijing Enterprises and Essential Utilities 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 Enterprises with a short position of Essential Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Enterprises and Essential Utilities.

Diversification Opportunities for Beijing Enterprises and Essential Utilities

-0.34

Correlation Coefficient

Beijing Enterprises  Essential Utilities

Very good diversification

The 3 months correlation between Beijing and Essential is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Enterprises Water and Essential Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Utilities and Beijing Enterprises 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 Enterprises Water are associated (or correlated) with Essential Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Utilities has no effect on the direction of Beijing Enterprises i.e., Beijing Enterprises and Essential Utilities go up and down completely randomly.

Pair Corralation between Beijing Enterprises and Essential Utilities

Assuming the 90 days horizon Beijing Enterprises Water is expected to under-perform the Essential Utilities. In addition to that, Beijing Enterprises is 1.42 times more volatile than Essential Utilities. It trades about -0.09 of its total potential returns per unit of risk. Essential Utilities is currently generating about 0.1 per unit of volatility. If you would invest  3,588  in Essential Utilities on December 30, 2024 and sell it today you would earn a total of  341.00  from holding Essential Utilities or generate 9.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Beijing Enterprises Water  vs.  Essential Utilities

Beijing Enterprises Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beijing Enterprises Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Essential Utilities

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Utilities are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Essential Utilities may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Beijing Enterprises and Essential Utilities

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

The idea behind Beijing Enterprises Water and Essential Utilities 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.