Correlation Between Kweichow Moutai and China International

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

Diversification Opportunities for Kweichow Moutai and China International

0.89

Correlation Coefficient

Kweichow Moutai  China International

Very poor diversification

The 3 months correlation between Kweichow and China is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Kweichow Moutai Co and China International Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China International 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 China International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China International has no effect on the direction of Kweichow Moutai i.e., Kweichow Moutai and China International go up and down completely randomly.

Pair Corralation between Kweichow Moutai and China International

Assuming the 90 days trading horizon Kweichow Moutai is expected to generate 2.7 times less return on investment than China International. But when comparing it to its historical volatility, Kweichow Moutai Co is 1.37 times less risky than China International. It trades about 0.07 of its potential returns per unit of risk. China International Capital is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,736  in China International Capital on August 31, 2024 and sell it today you would earn a total of  759.00  from holding China International Capital or generate 27.74% return on investment over 90 days.

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

Kweichow Moutai Co  vs.  China International Capital

Kweichow Moutai

Risk-Adjusted Performance

5 of 100

Insignificant

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.

China International

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Kweichow Moutai and China International

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

The idea behind Kweichow Moutai Co and China International Capital 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.