Correlation Between Beijing Sanyuan and Sichuan Teway

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

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

Diversification Opportunities for Beijing Sanyuan and Sichuan Teway

0.86

Correlation Coefficient

Beijing Sanyuan  Sichuan Teway

Very poor diversification

The 3 months correlation between Beijing and Sichuan is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Sanyuan Foods and Sichuan Teway Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Teway Food and Beijing 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 Beijing Sanyuan Foods are associated (or correlated) with Sichuan Teway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Teway Food has no effect on the direction of Beijing Sanyuan i.e., Beijing Sanyuan and Sichuan Teway go up and down completely randomly.

Pair Corralation between Beijing Sanyuan and Sichuan Teway

Assuming the 90 days trading horizon Beijing Sanyuan is expected to generate 1.28 times less return on investment than Sichuan Teway. But when comparing it to its historical volatility, Beijing Sanyuan Foods is 1.36 times less risky than Sichuan Teway. It trades about 0.31 of its potential returns per unit of risk. Sichuan Teway Food is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  862.00  in Sichuan Teway Food on September 15, 2024 and sell it today you would earn a total of  632.00  from holding Sichuan Teway Food or generate 73.32% return on investment over 90 days.

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

Beijing Sanyuan Foods  vs.  Sichuan Teway Food

Beijing Sanyuan Foods

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Sanyuan Foods are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Teway Food

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Teway Food are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Teway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Sanyuan and Sichuan Teway

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

The idea behind Beijing Sanyuan Foods and Sichuan Teway Food 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..