Correlation Between China Longyuan and Beijing HuaYuanYiTong

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

By analyzing existing cross correlation between China Longyuan Power and Beijing HuaYuanYiTong Thermal, you can compare the effects of market volatilities on China Longyuan and Beijing HuaYuanYiTong 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 China Longyuan with a short position of Beijing HuaYuanYiTong. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Longyuan and Beijing HuaYuanYiTong.

Diversification Opportunities for China Longyuan and Beijing HuaYuanYiTong

0.59

Correlation Coefficient

China Longyuan  Beijing HuaYuanYiTong

Very weak diversification

The 3 months correlation between China and Beijing is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding China Longyuan Power and Beijing HuaYuanYiTong Thermal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing HuaYuanYiTong and China Longyuan 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 China Longyuan Power are associated (or correlated) with Beijing HuaYuanYiTong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing HuaYuanYiTong has no effect on the direction of China Longyuan i.e., China Longyuan and Beijing HuaYuanYiTong go up and down completely randomly.

Pair Corralation between China Longyuan and Beijing HuaYuanYiTong

Assuming the 90 days trading horizon China Longyuan is expected to generate 1.91 times less return on investment than Beijing HuaYuanYiTong. But when comparing it to its historical volatility, China Longyuan Power is 1.18 times less risky than Beijing HuaYuanYiTong. It trades about 0.13 of its potential returns per unit of risk. Beijing HuaYuanYiTong Thermal is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  797.00  in Beijing HuaYuanYiTong Thermal on September 12, 2024 and sell it today you would earn a total of  402.00  from holding Beijing HuaYuanYiTong Thermal or generate 50.44% return on investment over 90 days.

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

China Longyuan Power  vs.  Beijing HuaYuanYiTong Thermal

China Longyuan Power

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Longyuan Power are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Longyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing HuaYuanYiTong

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing HuaYuanYiTong Thermal are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing HuaYuanYiTong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Longyuan and Beijing HuaYuanYiTong

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

The idea behind China Longyuan Power and Beijing HuaYuanYiTong Thermal 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.