Correlation Between Anhui Deli and China Resources

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

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

Diversification Opportunities for Anhui Deli and China Resources

0.15

Correlation Coefficient

Anhui Deli  China Resources

Average diversification

The 3 months correlation between Anhui and China is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Deli Household and China Resources Sanjiu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Sanjiu and Anhui Deli 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 Anhui Deli Household 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 Sanjiu has no effect on the direction of Anhui Deli i.e., Anhui Deli and China Resources go up and down completely randomly.

Pair Corralation between Anhui Deli and China Resources

Assuming the 90 days trading horizon Anhui Deli Household is expected to under-perform the China Resources. In addition to that, Anhui Deli is 1.73 times more volatile than China Resources Sanjiu. It trades about -0.05 of its total potential returns per unit of risk. China Resources Sanjiu is currently generating about -0.08 per unit of volatility. If you would invest  4,838  in China Resources Sanjiu on October 9, 2024 and sell it today you would lose (465.00) from holding China Resources Sanjiu or give up 9.61% of portfolio value over 90 days.

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

Anhui Deli Household  vs.  China Resources Sanjiu

Anhui Deli Household

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anhui Deli Household has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Resources Sanjiu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Sanjiu has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Anhui Deli and China Resources

The main advantage of trading using opposite Anhui Deli and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anhui Deli 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 Anhui Deli Household and China Resources Sanjiu 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.