Correlation Between BOSTON BEER and China Resources

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

By analyzing existing cross correlation between BOSTON BEER A and China Resources Beer, you can compare the effects of market volatilities on BOSTON BEER and China Resources 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 BOSTON BEER with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of BOSTON BEER and China Resources.

Diversification Opportunities for BOSTON BEER and China Resources

0.3

Correlation Coefficient

BOSTON BEER  China Resources

Weak diversification

The 3 months correlation between BOSTON and China is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding BOSTON BEER A and China Resources Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Beer and BOSTON BEER 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 BOSTON BEER A are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Beer has no effect on the direction of BOSTON BEER i.e., BOSTON BEER and China Resources go up and down completely randomly.

Pair Corralation between BOSTON BEER and China Resources

Assuming the 90 days trading horizon BOSTON BEER is expected to generate 1.18 times less return on investment than China Resources. But when comparing it to its historical volatility, BOSTON BEER A is 2.5 times less risky than China Resources. It trades about 0.16 of its potential returns per unit of risk. China Resources Beer is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  268.00  in China Resources Beer on September 4, 2024 and sell it today you would earn a total of  44.00  from holding China Resources Beer or generate 16.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

BOSTON BEER A   vs.  China Resources Beer

BOSTON BEER A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BOSTON BEER A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, BOSTON BEER exhibited solid returns over the last few months and may actually be approaching a breakup point.

China Resources Beer

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BOSTON BEER and China Resources

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

The idea behind BOSTON BEER A and China Resources Beer 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.