Correlation Between Tsingtao Brewery and Huafa Industrial

Can any of the company-specific risk be diversified away by investing in both Tsingtao Brewery and Huafa Industrial 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 Tsingtao Brewery and Huafa Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tsingtao Brewery Co and Huafa Industrial Co, you can compare the effects of market volatilities on Tsingtao Brewery and Huafa Industrial 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 Tsingtao Brewery with a short position of Huafa Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tsingtao Brewery and Huafa Industrial.

Diversification Opportunities for Tsingtao Brewery and Huafa Industrial

0.63

Correlation Coefficient

Tsingtao Brewery  Huafa Industrial

Poor diversification

The 3 months correlation between Tsingtao and Huafa is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Tsingtao Brewery Co and Huafa Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huafa Industrial and Tsingtao Brewery 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 Tsingtao Brewery Co are associated (or correlated) with Huafa Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huafa Industrial has no effect on the direction of Tsingtao Brewery i.e., Tsingtao Brewery and Huafa Industrial go up and down completely randomly.

Pair Corralation between Tsingtao Brewery and Huafa Industrial

Assuming the 90 days trading horizon Tsingtao Brewery Co is expected to generate 1.02 times more return on investment than Huafa Industrial. However, Tsingtao Brewery is 1.02 times more volatile than Huafa Industrial Co. It trades about 0.16 of its potential returns per unit of risk. Huafa Industrial Co is currently generating about 0.03 per unit of risk. If you would invest  5,957  in Tsingtao Brewery Co on September 25, 2024 and sell it today you would earn a total of  1,859  from holding Tsingtao Brewery Co or generate 31.21% return on investment over 90 days.

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

Tsingtao Brewery Co  vs.  Huafa Industrial Co

Tsingtao Brewery

Risk-Adjusted Performance

12 of 100

Good

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

Huafa Industrial

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Tsingtao Brewery and Huafa Industrial

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

The idea behind Tsingtao Brewery Co and Huafa Industrial Co 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.