Correlation Between Kweichow Moutai and Hainan Haiqi

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

Diversification Opportunities for Kweichow Moutai and Hainan Haiqi

0.49

Correlation Coefficient

Kweichow Moutai  Hainan Haiqi

Very weak diversification

The 3 months correlation between Kweichow and Hainan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Kweichow Moutai Co and Hainan Haiqi Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Haiqi Transpo 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 Hainan Haiqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Haiqi Transpo has no effect on the direction of Kweichow Moutai i.e., Kweichow Moutai and Hainan Haiqi go up and down completely randomly.

Pair Corralation between Kweichow Moutai and Hainan Haiqi

Assuming the 90 days trading horizon Kweichow Moutai is expected to generate 8.73 times less return on investment than Hainan Haiqi. But when comparing it to its historical volatility, Kweichow Moutai Co is 1.56 times less risky than Hainan Haiqi. It trades about 0.02 of its potential returns per unit of risk. Hainan Haiqi Transportation is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,650  in Hainan Haiqi Transportation on September 26, 2024 and sell it today you would earn a total of  251.00  from holding Hainan Haiqi Transportation or generate 15.21% return on investment over 90 days.

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

Kweichow Moutai Co  vs.  Hainan Haiqi Transportation

Kweichow Moutai

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Kweichow Moutai is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hainan Haiqi Transpo

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Haiqi Transportation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Haiqi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kweichow Moutai and Hainan Haiqi

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

The idea behind Kweichow Moutai Co and Hainan Haiqi Transportation 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.