Correlation Between China Petroleum and Kweichow Moutai

Can any of the company-specific risk be diversified away by investing in both China Petroleum 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 Petroleum 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 Petroleum Chemical and Kweichow Moutai Co, you can compare the effects of market volatilities on China Petroleum 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 Petroleum with a short position of Kweichow Moutai. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petroleum and Kweichow Moutai.

Diversification Opportunities for China Petroleum and Kweichow Moutai

0.01

Correlation Coefficient

China Petroleum  Kweichow Moutai

Significant diversification

The 3 months correlation between China and Kweichow is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding China Petroleum Chemical 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 Petroleum 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 Petroleum Chemical 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 Petroleum i.e., China Petroleum and Kweichow Moutai go up and down completely randomly.

Pair Corralation between China Petroleum and Kweichow Moutai

Assuming the 90 days trading horizon China Petroleum Chemical is expected to under-perform the Kweichow Moutai. But the stock apears to be less risky and, when comparing its historical volatility, China Petroleum Chemical is 1.39 times less risky than Kweichow Moutai. The stock trades about -0.07 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  139,500  in Kweichow Moutai Co on August 31, 2024 and sell it today you would earn a total of  13,074  from holding Kweichow Moutai Co or generate 9.37% return on investment over 90 days.

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

China Petroleum Chemical  vs.  Kweichow Moutai Co

China Petroleum Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Petroleum Chemical 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.

Kweichow Moutai

Risk-Adjusted Performance

5 of 100

Modest

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 Petroleum and Kweichow Moutai

The main advantage of trading using opposite China Petroleum and Kweichow Moutai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Petroleum 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 Petroleum Chemical 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.