Correlation Between China Resources and Datang International

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

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

Diversification Opportunities for China Resources and Datang International

0.76

Correlation Coefficient

China Resources  Datang International

Poor diversification

The 3 months correlation between China and Datang is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and Datang International Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datang International and China Resources 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 China Resources Beer are associated (or correlated) with Datang International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datang International has no effect on the direction of China Resources i.e., China Resources and Datang International go up and down completely randomly.

Pair Corralation between China Resources and Datang International

Assuming the 90 days horizon China Resources is expected to generate 1.84 times less return on investment than Datang International. In addition to that, China Resources is 1.28 times more volatile than Datang International Power. It trades about 0.03 of its total potential returns per unit of risk. Datang International Power is currently generating about 0.07 per unit of volatility. If you would invest  16.00  in Datang International Power on September 24, 2024 and sell it today you would earn a total of  2.00  from holding Datang International Power or generate 12.5% return on investment over 90 days.

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

China Resources Beer  vs.  Datang International Power

China Resources Beer

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Datang International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Datang International Power are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Datang International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and Datang International

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

The idea behind China Resources Beer and Datang International 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.