Correlation Between Kweichow Moutai and Ningbo Thermal

Can any of the company-specific risk be diversified away by investing in both Kweichow Moutai and Ningbo Thermal 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 Ningbo Thermal 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 Ningbo Thermal Power, you can compare the effects of market volatilities on Kweichow Moutai and Ningbo Thermal 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 Ningbo Thermal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kweichow Moutai and Ningbo Thermal.

Diversification Opportunities for Kweichow Moutai and Ningbo Thermal

0.77

Correlation Coefficient

Kweichow Moutai  Ningbo Thermal

Poor diversification

The 3 months correlation between Kweichow and Ningbo is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Kweichow Moutai Co and Ningbo Thermal Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Thermal Power 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 Ningbo Thermal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Thermal Power has no effect on the direction of Kweichow Moutai i.e., Kweichow Moutai and Ningbo Thermal go up and down completely randomly.

Pair Corralation between Kweichow Moutai and Ningbo Thermal

Assuming the 90 days trading horizon Kweichow Moutai Co is expected to under-perform the Ningbo Thermal. But the stock apears to be less risky and, when comparing its historical volatility, Kweichow Moutai Co is 1.04 times less risky than Ningbo Thermal. The stock trades about -0.01 of its potential returns per unit of risk. The Ningbo Thermal Power is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  429.00  in Ningbo Thermal Power on September 13, 2024 and sell it today you would lose (10.00) from holding Ningbo Thermal Power or give up 2.33% of portfolio value over 90 days.

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

Kweichow Moutai Co  vs.  Ningbo Thermal Power

Kweichow Moutai

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kweichow Moutai sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningbo Thermal Power

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Thermal Power are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Thermal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kweichow Moutai and Ningbo Thermal

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

The idea behind Kweichow Moutai Co and Ningbo Thermal Power 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.