Correlation Between China Resources and Chuangs China

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

Diversification Opportunities for China Resources and Chuangs China

0.1

Correlation Coefficient

China Resources  Chuangs China

Average diversification

The 3 months correlation between China and Chuangs is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and Chuangs China Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chuangs China Investments 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 Chuangs China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chuangs China Investments has no effect on the direction of China Resources i.e., China Resources and Chuangs China go up and down completely randomly.

Pair Corralation between China Resources and Chuangs China

Assuming the 90 days horizon China Resources Beer is expected to generate 4.9 times more return on investment than Chuangs China. However, China Resources is 4.9 times more volatile than Chuangs China Investments. It trades about 0.07 of its potential returns per unit of risk. Chuangs China Investments is currently generating about 0.0 per unit of risk. If you would invest  272.00  in China Resources Beer on September 3, 2024 and sell it today you would earn a total of  40.00  from holding China Resources Beer or generate 14.71% return on investment over 90 days.

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

China Resources Beer  vs.  Chuangs China Investments

China Resources Beer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 5 (%) 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.

Chuangs China Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chuangs China Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Chuangs China is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Resources and Chuangs China

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

The idea behind China Resources Beer and Chuangs China Investments 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.