Correlation Between China Coal and Beijing Digital

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

By analyzing existing cross correlation between China Coal Energy and Beijing Digital Telecom, you can compare the effects of market volatilities on China Coal and Beijing Digital 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 China Coal with a short position of Beijing Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Coal and Beijing Digital.

Diversification Opportunities for China Coal and Beijing Digital

0.28

Correlation Coefficient

China Coal  Beijing Digital

Modest diversification

The 3 months correlation between China and Beijing is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding China Coal Energy and Beijing Digital Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Digital Telecom and China Coal 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 China Coal Energy are associated (or correlated) with Beijing Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Digital Telecom has no effect on the direction of China Coal i.e., China Coal and Beijing Digital go up and down completely randomly.

Pair Corralation between China Coal and Beijing Digital

Assuming the 90 days horizon China Coal Energy is expected to generate 1.58 times more return on investment than Beijing Digital. However, China Coal is 1.58 times more volatile than Beijing Digital Telecom. It trades about 0.03 of its potential returns per unit of risk. Beijing Digital Telecom is currently generating about 0.01 per unit of risk. If you would invest  91.00  in China Coal Energy on February 6, 2024 and sell it today you would earn a total of  1.00  from holding China Coal Energy or generate 1.1% return on investment over 90 days.

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

China Coal Energy  vs.  Beijing Digital Telecom

China Coal Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Coal Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Coal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Beijing Digital Telecom

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Digital Telecom are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Beijing Digital is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with China Coal and Beijing Digital

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

The idea behind China Coal Energy and Beijing Digital Telecom 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.