Correlation Between Iwatani and China Resources

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

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

Diversification Opportunities for Iwatani and China Resources

0.34

Correlation Coefficient

Iwatani  China Resources

Weak diversification

The 3 months correlation between Iwatani and China is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Iwatani and China Resources Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Gas and Iwatani 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 Iwatani 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 Gas has no effect on the direction of Iwatani i.e., Iwatani and China Resources go up and down completely randomly.

Pair Corralation between Iwatani and China Resources

Assuming the 90 days trading horizon Iwatani is expected to under-perform the China Resources. But the stock apears to be less risky and, when comparing its historical volatility, Iwatani is 1.89 times less risky than China Resources. The stock trades about -0.2 of its potential returns per unit of risk. The China Resources Gas is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  324.00  in China Resources Gas on September 19, 2024 and sell it today you would earn a total of  26.00  from holding China Resources Gas or generate 8.02% return on investment over 90 days.

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

Iwatani  vs.  China Resources Gas

Iwatani

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iwatani has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

China Resources Gas

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Gas are ranked lower than 4 (%) 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.

Pair Trading with Iwatani and China Resources

The main advantage of trading using opposite Iwatani and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iwatani 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 Iwatani and China Resources Gas 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.