Correlation Between Beijing Yanjing and Guangzhou Haige

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

By analyzing existing cross correlation between Beijing Yanjing Brewery and Guangzhou Haige Communications, you can compare the effects of market volatilities on Beijing Yanjing and Guangzhou Haige 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 Beijing Yanjing with a short position of Guangzhou Haige. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Yanjing and Guangzhou Haige.

Diversification Opportunities for Beijing Yanjing and Guangzhou Haige

0.37

Correlation Coefficient

Beijing Yanjing  Guangzhou Haige

Weak diversification

The 3 months correlation between Beijing and Guangzhou is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Yanjing Brewery and Guangzhou Haige Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Haige Comm and Beijing Yanjing 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 Beijing Yanjing Brewery are associated (or correlated) with Guangzhou Haige. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Haige Comm has no effect on the direction of Beijing Yanjing i.e., Beijing Yanjing and Guangzhou Haige go up and down completely randomly.

Pair Corralation between Beijing Yanjing and Guangzhou Haige

Assuming the 90 days trading horizon Beijing Yanjing is expected to generate 4.28 times less return on investment than Guangzhou Haige. But when comparing it to its historical volatility, Beijing Yanjing Brewery is 1.76 times less risky than Guangzhou Haige. It trades about 0.02 of its potential returns per unit of risk. Guangzhou Haige Communications is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,062  in Guangzhou Haige Communications on September 28, 2024 and sell it today you would earn a total of  68.00  from holding Guangzhou Haige Communications or generate 6.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Beijing Yanjing Brewery  vs.  Guangzhou Haige Communications

Beijing Yanjing Brewery

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Yanjing Brewery are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Beijing Yanjing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangzhou Haige Comm

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Haige Communications are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Haige may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Beijing Yanjing and Guangzhou Haige

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

The idea behind Beijing Yanjing Brewery and Guangzhou Haige Communications 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.