Correlation Between Beijing Yanjing and Sichuan Yahua

Can any of the company-specific risk be diversified away by investing in both Beijing Yanjing and Sichuan Yahua 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 Sichuan Yahua 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 Sichuan Yahua Industrial, you can compare the effects of market volatilities on Beijing Yanjing and Sichuan Yahua 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 Sichuan Yahua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Yanjing and Sichuan Yahua.

Diversification Opportunities for Beijing Yanjing and Sichuan Yahua

0.55

Correlation Coefficient

Beijing Yanjing  Sichuan Yahua

Very weak diversification

The 3 months correlation between Beijing and Sichuan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Yanjing Brewery and Sichuan Yahua Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Yahua Industrial 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 Sichuan Yahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Yahua Industrial has no effect on the direction of Beijing Yanjing i.e., Beijing Yanjing and Sichuan Yahua go up and down completely randomly.

Pair Corralation between Beijing Yanjing and Sichuan Yahua

Assuming the 90 days trading horizon Beijing Yanjing Brewery is expected to generate 0.54 times more return on investment than Sichuan Yahua. However, Beijing Yanjing Brewery is 1.85 times less risky than Sichuan Yahua. It trades about 0.34 of its potential returns per unit of risk. Sichuan Yahua Industrial is currently generating about 0.05 per unit of risk. If you would invest  1,019  in Beijing Yanjing Brewery on September 28, 2024 and sell it today you would earn a total of  119.00  from holding Beijing Yanjing Brewery or generate 11.68% return on investment over 90 days.

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

Beijing Yanjing Brewery  vs.  Sichuan Yahua Industrial

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.

Sichuan Yahua Industrial

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Yahua Industrial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Yahua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Yanjing and Sichuan Yahua

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

The idea behind Beijing Yanjing Brewery and Sichuan Yahua Industrial 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.