Correlation Between Arca Continental and Beijing Enterprises

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

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

Diversification Opportunities for Arca Continental and Beijing Enterprises

0.38

Correlation Coefficient

Arca Continental  Beijing Enterprises

Weak diversification

The 3 months correlation between Arca and Beijing is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Arca Continental SAB and Beijing Enterprises Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Enterprises and Arca Continental 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 Arca Continental SAB are associated (or correlated) with Beijing Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Enterprises has no effect on the direction of Arca Continental i.e., Arca Continental and Beijing Enterprises go up and down completely randomly.

Pair Corralation between Arca Continental and Beijing Enterprises

Assuming the 90 days horizon Arca Continental SAB is expected to generate 6.09 times more return on investment than Beijing Enterprises. However, Arca Continental is 6.09 times more volatile than Beijing Enterprises Holdings. It trades about 0.16 of its potential returns per unit of risk. Beijing Enterprises Holdings is currently generating about 0.06 per unit of risk. If you would invest  864.00  in Arca Continental SAB on December 27, 2024 and sell it today you would earn a total of  207.00  from holding Arca Continental SAB or generate 23.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.67%
Values	Daily Returns

Arca Continental SAB  vs.  Beijing Enterprises Holdings

Arca Continental SAB

Risk-Adjusted Performance

Good

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

Beijing Enterprises

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Enterprises Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Beijing Enterprises is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Arca Continental and Beijing Enterprises

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

The idea behind Arca Continental SAB and Beijing Enterprises Holdings 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 Anywhere module to track or share privately all of your investments from the convenience of any device.