Correlation Between Datang HuaYin and Tsingtao Brewery

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Can any of the company-specific risk be diversified away by investing in both Datang HuaYin and Tsingtao Brewery 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 Datang HuaYin and Tsingtao Brewery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Datang HuaYin Electric and Tsingtao Brewery Co, you can compare the effects of market volatilities on Datang HuaYin and Tsingtao Brewery 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 Datang HuaYin with a short position of Tsingtao Brewery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datang HuaYin and Tsingtao Brewery.

Diversification Opportunities for Datang HuaYin and Tsingtao Brewery

DatangTsingtaoDiversified AwayDatangTsingtaoDiversified Away100%
0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Datang and Tsingtao is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Datang HuaYin Electric and Tsingtao Brewery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsingtao Brewery and Datang HuaYin 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 Datang HuaYin Electric are associated (or correlated) with Tsingtao Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsingtao Brewery has no effect on the direction of Datang HuaYin i.e., Datang HuaYin and Tsingtao Brewery go up and down completely randomly.

Pair Corralation between Datang HuaYin and Tsingtao Brewery

Assuming the 90 days trading horizon Datang HuaYin is expected to generate 1.4 times less return on investment than Tsingtao Brewery. But when comparing it to its historical volatility, Datang HuaYin Electric is 1.15 times less risky than Tsingtao Brewery. It trades about 0.18 of its potential returns per unit of risk. Tsingtao Brewery Co is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  5,446  in Tsingtao Brewery Co on September 14, 2024 and sell it today you would earn a total of  2,545  from holding Tsingtao Brewery Co or generate 46.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Datang HuaYin Electric  vs.  Tsingtao Brewery Co

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 0102030
JavaScript chart by amCharts 3.21.15600744 600600
       Timeline  
Datang HuaYin Electric 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Datang HuaYin Electric are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Datang HuaYin sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec2.833.23.43.63.8
Tsingtao Brewery 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Tsingtao Brewery Co are ranked lower than 17 (%) 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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec55606570758085

Datang HuaYin and Tsingtao Brewery Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-8.21-6.15-4.09-2.030.02.154.386.68.8311.05 0.0200.0250.0300.0350.0400.0450.0500.055
JavaScript chart by amCharts 3.21.15600744 600600
       Returns  

Pair Trading with Datang HuaYin and Tsingtao Brewery

The main advantage of trading using opposite Datang HuaYin and Tsingtao Brewery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Datang HuaYin position performs unexpectedly, Tsingtao Brewery 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 Tsingtao Brewery will offset losses from the drop in Tsingtao Brewery's long position.
The idea behind Datang HuaYin Electric and Tsingtao Brewery 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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