Correlation Between China Merchants and Kweichow Moutai

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

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

Diversification Opportunities for China Merchants and Kweichow Moutai

0.84

Correlation Coefficient

China Merchants  Kweichow Moutai

Very poor diversification

The 3 months correlation between China and Kweichow is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Kweichow Moutai Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kweichow Moutai and China Merchants 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 Merchants Shekou are associated (or correlated) with Kweichow Moutai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kweichow Moutai has no effect on the direction of China Merchants i.e., China Merchants and Kweichow Moutai go up and down completely randomly.

Pair Corralation between China Merchants and Kweichow Moutai

Assuming the 90 days trading horizon China Merchants Shekou is expected to generate 1.66 times more return on investment than Kweichow Moutai. However, China Merchants is 1.66 times more volatile than Kweichow Moutai Co. It trades about 0.0 of its potential returns per unit of risk. Kweichow Moutai Co is currently generating about -0.01 per unit of risk. If you would invest  1,388  in China Merchants Shekou on August 31, 2024 and sell it today you would lose (208.00) from holding China Merchants Shekou or give up 14.99% of portfolio value over 90 days.

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

China Merchants Shekou  vs.  Kweichow Moutai Co

China Merchants Shekou

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Shekou are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Merchants sustained solid returns over the last few months and may actually be approaching a breakup point.

Kweichow Moutai

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kweichow Moutai may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with China Merchants and Kweichow Moutai

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

The idea behind China Merchants Shekou and Kweichow Moutai Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.