Correlation Between China Resources and Iwatani

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

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

Diversification Opportunities for China Resources and Iwatani

0.32

Correlation Coefficient

China Resources  Iwatani

Weak diversification

The 3 months correlation between China and Iwatani is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Gas and Iwatani in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iwatani 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 Gas are associated (or correlated) with Iwatani. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iwatani has no effect on the direction of China Resources i.e., China Resources and Iwatani go up and down completely randomly.

Pair Corralation between China Resources and Iwatani

Assuming the 90 days trading horizon China Resources Gas is expected to generate 1.9 times more return on investment than Iwatani. However, China Resources is 1.9 times more volatile than Iwatani. It trades about 0.07 of its potential returns per unit of risk. Iwatani is currently generating about -0.18 per unit of risk. If you would invest  316.00  in China Resources Gas on September 20, 2024 and sell it today you would earn a total of  34.00  from holding China Resources Gas or generate 10.76% return on investment over 90 days.

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

China Resources Gas  vs.  Iwatani

China Resources Gas

Risk-Adjusted Performance

5 of 100

Modest

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

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.

Pair Trading with China Resources and Iwatani

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

The idea behind China Resources Gas and Iwatani 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.