Correlation Between Tsingtao Brewery and American Homes

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

By analyzing existing cross correlation between Tsingtao Brewery and American Homes 4, you can compare the effects of market volatilities on Tsingtao Brewery and American Homes 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 Tsingtao Brewery with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tsingtao Brewery and American Homes.

Diversification Opportunities for Tsingtao Brewery and American Homes

-0.34

Correlation Coefficient

Tsingtao Brewery  American Homes

Very good diversification

The 3 months correlation between Tsingtao and American is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Tsingtao Brewery and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and Tsingtao Brewery 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 Tsingtao Brewery are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Tsingtao Brewery i.e., Tsingtao Brewery and American Homes go up and down completely randomly.

Pair Corralation between Tsingtao Brewery and American Homes

Assuming the 90 days trading horizon Tsingtao Brewery is expected to generate 2.06 times more return on investment than American Homes. However, Tsingtao Brewery is 2.06 times more volatile than American Homes 4. It trades about 0.15 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.01 per unit of risk. If you would invest  478.00  in Tsingtao Brewery on September 19, 2024 and sell it today you would earn a total of  189.00  from holding Tsingtao Brewery or generate 39.54% return on investment over 90 days.

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

Tsingtao Brewery  vs.  American Homes 4

Tsingtao Brewery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tsingtao Brewery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, Tsingtao Brewery exhibited solid returns over the last few months and may actually be approaching a breakup point.

American Homes 4

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tsingtao Brewery and American Homes

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

The idea behind Tsingtao Brewery and American Homes 4 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 Transaction History module to view history of all your transactions and understand their impact on performance.