Correlation Between Tsingtao Brewery and Boston Beer
Can any of the company-specific risk be diversified away by investing in both Tsingtao Brewery and Boston Beer 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 Boston Beer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tsingtao Brewery and The Boston Beer, you can compare the effects of market volatilities on Tsingtao Brewery and Boston Beer 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 Boston Beer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tsingtao Brewery and Boston Beer.
Diversification Opportunities for Tsingtao Brewery and Boston Beer
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Tsingtao and Boston is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Tsingtao Brewery and The Boston Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Beer 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 are associated (or correlated) with Boston Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Beer has no effect on the direction of Tsingtao Brewery i.e., Tsingtao Brewery and Boston Beer go up and down completely randomly.
Pair Corralation between Tsingtao Brewery and Boston Beer
Assuming the 90 days horizon Tsingtao Brewery is expected to generate 5.72 times less return on investment than Boston Beer. In addition to that, Tsingtao Brewery is 1.95 times more volatile than The Boston Beer. It trades about 0.03 of its total potential returns per unit of risk. The Boston Beer is currently generating about 0.3 per unit of volatility. If you would invest 27,180 in The Boston Beer on September 4, 2024 and sell it today you would earn a total of 2,500 from holding The Boston Beer or generate 9.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Tsingtao Brewery vs. The Boston Beer
Performance |
| Timeline |
| Tsingtao Brewery |
| Boston Beer |
Tsingtao Brewery and Boston Beer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tsingtao Brewery and Boston Beer
The main advantage of trading using opposite Tsingtao Brewery and Boston Beer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tsingtao Brewery position performs unexpectedly, Boston Beer 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 Boston Beer will offset losses from the drop in Boston Beer's long position.The idea behind Tsingtao Brewery and The Boston Beer 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.Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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