Correlation Between Kweichow Moutai and Tonghua Grape

Can any of the company-specific risk be diversified away by investing in both Kweichow Moutai and Tonghua Grape 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 Kweichow Moutai and Tonghua Grape into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kweichow Moutai Co and Tonghua Grape Wine, you can compare the effects of market volatilities on Kweichow Moutai and Tonghua Grape 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 Kweichow Moutai with a short position of Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kweichow Moutai and Tonghua Grape.

Diversification Opportunities for Kweichow Moutai and Tonghua Grape

0.63

Correlation Coefficient

Kweichow Moutai  Tonghua Grape

Poor diversification

The 3 months correlation between Kweichow and Tonghua is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Kweichow Moutai Co and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine and Kweichow Moutai 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 Kweichow Moutai Co are associated (or correlated) with Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of Kweichow Moutai i.e., Kweichow Moutai and Tonghua Grape go up and down completely randomly.

Pair Corralation between Kweichow Moutai and Tonghua Grape

Assuming the 90 days trading horizon Kweichow Moutai is expected to generate 1.42 times less return on investment than Tonghua Grape. In addition to that, Kweichow Moutai is 1.01 times more volatile than Tonghua Grape Wine. It trades about 0.07 of its total potential returns per unit of risk. Tonghua Grape Wine is currently generating about 0.1 per unit of volatility. If you would invest  254.00  in Tonghua Grape Wine on September 1, 2024 and sell it today you would earn a total of  37.00  from holding Tonghua Grape Wine or generate 14.57% return on investment over 90 days.

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

Kweichow Moutai Co  vs.  Tonghua Grape Wine

Kweichow Moutai

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kweichow Moutai may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Tonghua Grape Wine

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tonghua Grape sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kweichow Moutai and Tonghua Grape

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

The idea behind Kweichow Moutai Co and Tonghua Grape Wine 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.