Correlation Between Beijing Wandong and Zhongzhu Medical

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

By analyzing existing cross correlation between Beijing Wandong Medical and Zhongzhu Medical Holdings, you can compare the effects of market volatilities on Beijing Wandong and Zhongzhu Medical 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 Wandong with a short position of Zhongzhu Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing Wandong and Zhongzhu Medical.

Diversification Opportunities for Beijing Wandong and Zhongzhu Medical

0.88

Correlation Coefficient

Beijing Wandong  Zhongzhu Medical

Very poor diversification

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

Pair Corralation between Beijing Wandong and Zhongzhu Medical

Assuming the 90 days trading horizon Beijing Wandong Medical is expected to generate 1.09 times more return on investment than Zhongzhu Medical. However, Beijing Wandong is 1.09 times more volatile than Zhongzhu Medical Holdings. It trades about 0.03 of its potential returns per unit of risk. Zhongzhu Medical Holdings is currently generating about 0.02 per unit of risk. If you would invest  1,509  in Beijing Wandong Medical on September 30, 2024 and sell it today you would earn a total of  44.00  from holding Beijing Wandong Medical or generate 2.92% return on investment over 90 days.

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

Beijing Wandong Medical  vs.  Zhongzhu Medical Holdings

Beijing Wandong Medical

Risk-Adjusted Performance

2 of 100

Weak

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

Zhongzhu Medical Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongzhu Medical Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhongzhu Medical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Beijing Wandong and Zhongzhu Medical

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

The idea behind Beijing Wandong Medical and Zhongzhu Medical Holdings 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.