Correlation Between Tsingtao Brewery and State Street

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

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

Diversification Opportunities for Tsingtao Brewery and State Street

-0.48

Correlation Coefficient

Tsingtao Brewery  State Street

Very good diversification

The 3 months correlation between Tsingtao and State is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Tsingtao Brewery and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street has no effect on the direction of Tsingtao Brewery i.e., Tsingtao Brewery and State Street go up and down completely randomly.

Pair Corralation between Tsingtao Brewery and State Street

Assuming the 90 days trading horizon Tsingtao Brewery is expected to generate 1.21 times more return on investment than State Street. However, Tsingtao Brewery is 1.21 times more volatile than State Street. It trades about 0.3 of its potential returns per unit of risk. State Street is currently generating about 0.11 per unit of risk. If you would invest  606.00  in Tsingtao Brewery on October 9, 2024 and sell it today you would earn a total of  53.00  from holding Tsingtao Brewery or generate 8.75% return on investment over 90 days.

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

Tsingtao Brewery  vs.  State Street

Tsingtao Brewery

Risk-Adjusted Performance

0 of 100

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

State Street

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, State Street reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tsingtao Brewery and State Street

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

The idea behind Tsingtao Brewery and State Street 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.