Correlation Between Wuliangye Yibin and Central China

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

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

Diversification Opportunities for Wuliangye Yibin and Central China

0.64

Correlation Coefficient

Wuliangye Yibin  Central China

Poor diversification

The 3 months correlation between Wuliangye and Central is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Wuliangye Yibin Co and Central China Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central China Land and Wuliangye Yibin 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 Wuliangye Yibin Co are associated (or correlated) with Central China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central China Land has no effect on the direction of Wuliangye Yibin i.e., Wuliangye Yibin and Central China go up and down completely randomly.

Pair Corralation between Wuliangye Yibin and Central China

Assuming the 90 days trading horizon Wuliangye Yibin is expected to generate 1.01 times less return on investment than Central China. But when comparing it to its historical volatility, Wuliangye Yibin Co is 1.32 times less risky than Central China. It trades about 0.03 of its potential returns per unit of risk. Central China Land is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,072  in Central China Land on September 4, 2024 and sell it today you would earn a total of  53.00  from holding Central China Land or generate 4.94% return on investment over 90 days.

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

Wuliangye Yibin Co  vs.  Central China Land

Wuliangye Yibin

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wuliangye Yibin Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuliangye Yibin sustained solid returns over the last few months and may actually be approaching a breakup point.

Central China Land

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Central China Land are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wuliangye Yibin and Central China

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

The idea behind Wuliangye Yibin Co and Central China Land 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.