Correlation Between Vats Liquor and Ningbo Construction

Can any of the company-specific risk be diversified away by investing in both Vats Liquor and Ningbo Construction 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 Ningbo Construction 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 Ningbo Construction Co, you can compare the effects of market volatilities on Vats Liquor and Ningbo Construction 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 Ningbo Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vats Liquor and Ningbo Construction.

Diversification Opportunities for Vats Liquor and Ningbo Construction

0.4

Correlation Coefficient

Vats Liquor  Ningbo Construction

Very weak diversification

The 3 months correlation between Vats and Ningbo is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Vats Liquor Chain and Ningbo Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Construction 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 Ningbo Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Construction has no effect on the direction of Vats Liquor i.e., Vats Liquor and Ningbo Construction go up and down completely randomly.

Pair Corralation between Vats Liquor and Ningbo Construction

Assuming the 90 days trading horizon Vats Liquor Chain is expected to under-perform the Ningbo Construction. In addition to that, Vats Liquor is 1.19 times more volatile than Ningbo Construction Co. It trades about -0.07 of its total potential returns per unit of risk. Ningbo Construction Co is currently generating about -0.01 per unit of volatility. If you would invest  441.00  in Ningbo Construction Co on October 8, 2024 and sell it today you would lose (31.00) from holding Ningbo Construction Co or give up 7.03% of portfolio value over 90 days.

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

Vats Liquor Chain  vs.  Ningbo Construction Co

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ningbo Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningbo Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ningbo Construction 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 Ningbo Construction

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

The idea behind Vats Liquor Chain and Ningbo Construction 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.