Correlation Between Tianjin Capital and BJs Restaurants

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

By analyzing existing cross correlation between Tianjin Capital Environmental and BJs Restaurants, you can compare the effects of market volatilities on Tianjin Capital and BJs Restaurants 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 Tianjin Capital with a short position of BJs Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tianjin Capital and BJs Restaurants.

Diversification Opportunities for Tianjin Capital and BJs Restaurants

0.49

Correlation Coefficient

Tianjin Capital  BJs Restaurants

Very weak diversification

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

Pair Corralation between Tianjin Capital and BJs Restaurants

Assuming the 90 days horizon Tianjin Capital Environmental is expected to under-perform the BJs Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Tianjin Capital Environmental is 1.49 times less risky than BJs Restaurants. The stock trades about -0.05 of its potential returns per unit of risk. The BJs Restaurants is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,320  in BJs Restaurants on December 29, 2024 and sell it today you would lose (20.00) from holding BJs Restaurants or give up 0.6% of portfolio value over 90 days.

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

Tianjin Capital Environmental  vs.  BJs Restaurants

Tianjin Capital Envi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianjin Capital Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tianjin Capital is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BJs Restaurants is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tianjin Capital and BJs Restaurants

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

The idea behind Tianjin Capital Environmental and BJs Restaurants 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.