Correlation Between Vats Liquor and China Railway

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

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

Diversification Opportunities for Vats Liquor and China Railway

0.35

Correlation Coefficient

Vats Liquor  China Railway

Weak diversification

The 3 months correlation between Vats and China is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Vats Liquor Chain and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and Vats Liquor 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 Vats Liquor Chain are associated (or correlated) with China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Group has no effect on the direction of Vats Liquor i.e., Vats Liquor and China Railway go up and down completely randomly.

Pair Corralation between Vats Liquor and China Railway

Assuming the 90 days trading horizon Vats Liquor Chain is expected to under-perform the China Railway. In addition to that, Vats Liquor is 1.32 times more volatile than China Railway Group. It trades about -0.03 of its total potential returns per unit of risk. China Railway Group is currently generating about 0.02 per unit of volatility. If you would invest  579.00  in China Railway Group on October 3, 2024 and sell it today you would earn a total of  60.00  from holding China Railway Group or generate 10.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.78%
Values	Daily Returns

Vats Liquor Chain  vs.  China Railway Group

Vats Liquor Chain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vats Liquor Chain 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 Railway Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Railway Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vats Liquor and China Railway

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

The idea behind Vats Liquor Chain and China Railway Group 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.