Correlation Between Tsingtao Brewery and Thyssenkrupp

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

By analyzing existing cross correlation between Tsingtao Brewery and thyssenkrupp AG, you can compare the effects of market volatilities on Tsingtao Brewery and Thyssenkrupp 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 Thyssenkrupp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tsingtao Brewery and Thyssenkrupp.

Diversification Opportunities for Tsingtao Brewery and Thyssenkrupp

0.07

Correlation Coefficient

Tsingtao Brewery  Thyssenkrupp

Significant diversification

The 3 months correlation between Tsingtao and Thyssenkrupp is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Tsingtao Brewery and thyssenkrupp AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on thyssenkrupp AG 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 Thyssenkrupp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of thyssenkrupp AG has no effect on the direction of Tsingtao Brewery i.e., Tsingtao Brewery and Thyssenkrupp go up and down completely randomly.

Pair Corralation between Tsingtao Brewery and Thyssenkrupp

Assuming the 90 days trading horizon Tsingtao Brewery is expected to generate 167.61 times less return on investment than Thyssenkrupp. But when comparing it to its historical volatility, Tsingtao Brewery is 2.58 times less risky than Thyssenkrupp. It trades about 0.01 of its potential returns per unit of risk. thyssenkrupp AG is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  383.00  in thyssenkrupp AG on December 26, 2024 and sell it today you would earn a total of  577.00  from holding thyssenkrupp AG or generate 150.65% return on investment over 90 days.

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

Tsingtao Brewery  vs.  thyssenkrupp AG

Tsingtao Brewery

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tsingtao Brewery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Tsingtao Brewery is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

thyssenkrupp AG

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in thyssenkrupp AG are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Thyssenkrupp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tsingtao Brewery and Thyssenkrupp

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

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