Correlation Between Shandong Sanyuan and Beijing HuaYuanYiTong

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

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

Diversification Opportunities for Shandong Sanyuan and Beijing HuaYuanYiTong

0.66

Correlation Coefficient

Shandong Sanyuan  Beijing HuaYuanYiTong

Poor diversification

The 3 months correlation between Shandong and Beijing is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Sanyuan Biotechnology and Beijing HuaYuanYiTong Thermal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing HuaYuanYiTong and Shandong Sanyuan 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 Shandong Sanyuan Biotechnology 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 Shandong Sanyuan i.e., Shandong Sanyuan and Beijing HuaYuanYiTong go up and down completely randomly.

Pair Corralation between Shandong Sanyuan and Beijing HuaYuanYiTong

Assuming the 90 days trading horizon Shandong Sanyuan Biotechnology is expected to under-perform the Beijing HuaYuanYiTong. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Sanyuan Biotechnology is 1.36 times less risky than Beijing HuaYuanYiTong. The stock trades about -0.01 of its potential returns per unit of risk. The Beijing HuaYuanYiTong Thermal is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  998.00  in Beijing HuaYuanYiTong Thermal on September 28, 2024 and sell it today you would earn a total of  20.00  from holding Beijing HuaYuanYiTong Thermal or generate 2.0% return on investment over 90 days.

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

Shandong Sanyuan Biotechnology  vs.  Beijing HuaYuanYiTong Thermal

Shandong Sanyuan Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Sanyuan Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong Sanyuan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Beijing HuaYuanYiTong

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing HuaYuanYiTong Thermal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Beijing HuaYuanYiTong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shandong Sanyuan and Beijing HuaYuanYiTong

The main advantage of trading using opposite Shandong Sanyuan and Beijing HuaYuanYiTong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong Sanyuan 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 Shandong Sanyuan Biotechnology 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.