Correlation Between Beijing HuaYuanYiTong and Shanghai Putailai

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

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

Diversification Opportunities for Beijing HuaYuanYiTong and Shanghai Putailai

0.88

Correlation Coefficient

Beijing HuaYuanYiTong  Shanghai Putailai

Very poor diversification

The 3 months correlation between Beijing and Shanghai is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Beijing HuaYuanYiTong Thermal and Shanghai Putailai New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Putailai New and Beijing HuaYuanYiTong 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 HuaYuanYiTong Thermal are associated (or correlated) with Shanghai Putailai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Putailai New has no effect on the direction of Beijing HuaYuanYiTong i.e., Beijing HuaYuanYiTong and Shanghai Putailai go up and down completely randomly.

Pair Corralation between Beijing HuaYuanYiTong and Shanghai Putailai

Assuming the 90 days trading horizon Beijing HuaYuanYiTong Thermal is expected to generate 1.11 times more return on investment than Shanghai Putailai. However, Beijing HuaYuanYiTong is 1.11 times more volatile than Shanghai Putailai New. It trades about -0.06 of its potential returns per unit of risk. Shanghai Putailai New is currently generating about -0.33 per unit of risk. If you would invest  1,156  in Beijing HuaYuanYiTong Thermal on September 23, 2024 and sell it today you would lose (42.00) from holding Beijing HuaYuanYiTong Thermal or give up 3.63% of portfolio value over 90 days.

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

Beijing HuaYuanYiTong Thermal  vs.  Shanghai Putailai New

Beijing HuaYuanYiTong

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing HuaYuanYiTong Thermal are ranked lower than 10 (%) 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.

Shanghai Putailai New

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Beijing HuaYuanYiTong and Shanghai Putailai

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

The idea behind Beijing HuaYuanYiTong Thermal and Shanghai Putailai New 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.