Correlation Between Beijing Jiaman and Suzhou Xingye

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

By analyzing existing cross correlation between Beijing Jiaman Dress and Suzhou Xingye Material, you can compare the effects of market volatilities on Beijing Jiaman and Suzhou Xingye 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 Jiaman with a short position of Suzhou Xingye. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Jiaman and Suzhou Xingye.

Diversification Opportunities for Beijing Jiaman and Suzhou Xingye

0.76

Correlation Coefficient

Beijing Jiaman  Suzhou Xingye

Poor diversification

The 3 months correlation between Beijing and Suzhou is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Jiaman Dress and Suzhou Xingye Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Xingye Material and Beijing Jiaman 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 Jiaman Dress are associated (or correlated) with Suzhou Xingye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Xingye Material has no effect on the direction of Beijing Jiaman i.e., Beijing Jiaman and Suzhou Xingye go up and down completely randomly.

Pair Corralation between Beijing Jiaman and Suzhou Xingye

Assuming the 90 days trading horizon Beijing Jiaman is expected to generate 1.18 times less return on investment than Suzhou Xingye. In addition to that, Beijing Jiaman is 1.05 times more volatile than Suzhou Xingye Material. It trades about 0.13 of its total potential returns per unit of risk. Suzhou Xingye Material is currently generating about 0.16 per unit of volatility. If you would invest  733.00  in Suzhou Xingye Material on September 3, 2024 and sell it today you would earn a total of  202.00  from holding Suzhou Xingye Material or generate 27.56% return on investment over 90 days.

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

Beijing Jiaman Dress  vs.  Suzhou Xingye Material

Beijing Jiaman Dress

Risk-Adjusted Performance

10 of 100

OK

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

Suzhou Xingye Material

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Xingye Material are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Xingye sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Jiaman and Suzhou Xingye

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

The idea behind Beijing Jiaman Dress and Suzhou Xingye Material 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.