Correlation Between Beijing Wantai and Shanghai Sanyou

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

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

Diversification Opportunities for Beijing Wantai and Shanghai Sanyou

0.53

Correlation Coefficient

Beijing Wantai  Shanghai Sanyou

Very weak diversification

The 3 months correlation between Beijing and Shanghai is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Wantai Biological and Shanghai Sanyou Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Sanyou Medical and Beijing Wantai 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 Wantai Biological are associated (or correlated) with Shanghai Sanyou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Sanyou Medical has no effect on the direction of Beijing Wantai i.e., Beijing Wantai and Shanghai Sanyou go up and down completely randomly.

Pair Corralation between Beijing Wantai and Shanghai Sanyou

Assuming the 90 days trading horizon Beijing Wantai Biological is expected to generate 1.09 times more return on investment than Shanghai Sanyou. However, Beijing Wantai is 1.09 times more volatile than Shanghai Sanyou Medical. It trades about 0.07 of its potential returns per unit of risk. Shanghai Sanyou Medical is currently generating about 0.04 per unit of risk. If you would invest  4,830  in Beijing Wantai Biological on September 4, 2024 and sell it today you would earn a total of  2,700  from holding Beijing Wantai Biological or generate 55.9% return on investment over 90 days.

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

Beijing Wantai Biological  vs.  Shanghai Sanyou Medical

Beijing Wantai Biological

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Wantai Biological are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Wantai may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shanghai Sanyou Medical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Sanyou Medical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Sanyou sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beijing Wantai and Shanghai Sanyou

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

The idea behind Beijing Wantai Biological and Shanghai Sanyou Medical 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.