Correlation Between Huaneng Lancang and Kweichow Moutai

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

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

Diversification Opportunities for Huaneng Lancang and Kweichow Moutai

0.76

Correlation Coefficient

Huaneng Lancang  Kweichow Moutai

Poor diversification

The 3 months correlation between Huaneng and Kweichow is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Lancang River and Kweichow Moutai Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kweichow Moutai and Huaneng Lancang 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 Huaneng Lancang River 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 Huaneng Lancang i.e., Huaneng Lancang and Kweichow Moutai go up and down completely randomly.

Pair Corralation between Huaneng Lancang and Kweichow Moutai

Assuming the 90 days trading horizon Huaneng Lancang River is expected to under-perform the Kweichow Moutai. But the stock apears to be less risky and, when comparing its historical volatility, Huaneng Lancang River is 1.04 times less risky than Kweichow Moutai. The stock trades about -0.19 of its potential returns per unit of risk. The Kweichow Moutai Co is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  156,750  in Kweichow Moutai Co on October 23, 2024 and sell it today you would lose (9,270) from holding Kweichow Moutai Co or give up 5.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Huaneng Lancang River  vs.  Kweichow Moutai Co

Huaneng Lancang River

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaneng Lancang River 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.

Kweichow Moutai

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Huaneng Lancang and Kweichow Moutai

The main advantage of trading using opposite Huaneng Lancang and Kweichow Moutai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huaneng Lancang 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 Huaneng Lancang River 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.