Correlation Between Beijing SPC and Shandong

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

By analyzing existing cross correlation between Beijing SPC Environment and Shandong Hi Speed RoadBridge, you can compare the effects of market volatilities on Beijing SPC and Shandong 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 SPC with a short position of Shandong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing SPC and Shandong.

Diversification Opportunities for Beijing SPC and Shandong

0.98

Correlation Coefficient

Beijing SPC  Shandong

Almost no diversification

The 3 months correlation between Beijing and Shandong is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Beijing SPC Environment and Shandong Hi Speed RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hi Speed and Beijing SPC 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 SPC Environment are associated (or correlated) with Shandong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hi Speed has no effect on the direction of Beijing SPC i.e., Beijing SPC and Shandong go up and down completely randomly.

Pair Corralation between Beijing SPC and Shandong

Assuming the 90 days trading horizon Beijing SPC Environment is expected to generate 0.96 times more return on investment than Shandong. However, Beijing SPC Environment is 1.04 times less risky than Shandong. It trades about 0.2 of its potential returns per unit of risk. Shandong Hi Speed RoadBridge is currently generating about 0.18 per unit of risk. If you would invest  331.00  in Beijing SPC Environment on September 4, 2024 and sell it today you would earn a total of  108.00  from holding Beijing SPC Environment or generate 32.63% return on investment over 90 days.

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

Beijing SPC Environment  vs.  Shandong Hi Speed RoadBridge

Beijing SPC Environment

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing SPC Environment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing SPC sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Hi Speed

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hi Speed RoadBridge are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing SPC and Shandong

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

The idea behind Beijing SPC Environment and Shandong Hi Speed RoadBridge 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.