Correlation Between Chongqing Brewery and China Merchants

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

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

Diversification Opportunities for Chongqing Brewery and China Merchants

0.85

Correlation Coefficient

Chongqing Brewery  China Merchants

Very poor diversification

The 3 months correlation between Chongqing and China is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Brewery Co and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou and Chongqing 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 Chongqing Brewery Co are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Shekou has no effect on the direction of Chongqing Brewery i.e., Chongqing Brewery and China Merchants go up and down completely randomly.

Pair Corralation between Chongqing Brewery and China Merchants

Assuming the 90 days trading horizon Chongqing Brewery is expected to generate 1.32 times less return on investment than China Merchants. But when comparing it to its historical volatility, Chongqing Brewery Co is 1.14 times less risky than China Merchants. It trades about 0.13 of its potential returns per unit of risk. China Merchants Shekou is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  864.00  in China Merchants Shekou on September 12, 2024 and sell it today you would earn a total of  258.00  from holding China Merchants Shekou or generate 29.86% return on investment over 90 days.

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

Chongqing Brewery Co  vs.  China Merchants Shekou

Chongqing Brewery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Brewery Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Brewery sustained solid returns over the last few months and may actually be approaching a breakup point.

China Merchants Shekou

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Shekou are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Merchants sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chongqing Brewery and China Merchants

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

The idea behind Chongqing Brewery Co and China Merchants Shekou 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.