Correlation Between China Resources and Vulcan Materials

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

Diversification Opportunities for China Resources and Vulcan Materials

-0.56

Correlation Coefficient

China Resources  Vulcan Materials

Excellent diversification

The 3 months correlation between China and Vulcan is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of China Resources i.e., China Resources and Vulcan Materials go up and down completely randomly.

Pair Corralation between China Resources and Vulcan Materials

Assuming the 90 days horizon China Resources Beer is expected to under-perform the Vulcan Materials. In addition to that, China Resources is 1.83 times more volatile than Vulcan Materials. It trades about -0.01 of its total potential returns per unit of risk. Vulcan Materials is currently generating about 0.06 per unit of volatility. If you would invest  16,358  in Vulcan Materials on September 26, 2024 and sell it today you would earn a total of  8,642  from holding Vulcan Materials or generate 52.83% return on investment over 90 days.

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

China Resources Beer  vs.  Vulcan Materials

China Resources Beer

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vulcan Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and Vulcan Materials

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

The idea behind China Resources Beer and Vulcan Materials 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.