Correlation Between Chongqing Brewery and Yangmei Chemical

Can any of the company-specific risk be diversified away by investing in both Chongqing Brewery and Yangmei Chemical 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 Chongqing Brewery and Yangmei Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chongqing Brewery Co and Yangmei Chemical Co, you can compare the effects of market volatilities on Chongqing Brewery and Yangmei Chemical 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 Chongqing Brewery with a short position of Yangmei Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Brewery and Yangmei Chemical.

Diversification Opportunities for Chongqing Brewery and Yangmei Chemical

0.78

Correlation Coefficient

Chongqing Brewery  Yangmei Chemical

Poor diversification

The 3 months correlation between Chongqing and Yangmei is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Brewery Co and Yangmei Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yangmei Chemical and Chongqing Brewery 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 Chongqing Brewery Co are associated (or correlated) with Yangmei Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yangmei Chemical has no effect on the direction of Chongqing Brewery i.e., Chongqing Brewery and Yangmei Chemical go up and down completely randomly.

Pair Corralation between Chongqing Brewery and Yangmei Chemical

Assuming the 90 days trading horizon Chongqing Brewery Co is expected to under-perform the Yangmei Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Chongqing Brewery Co is 1.64 times less risky than Yangmei Chemical. The stock trades about -0.18 of its potential returns per unit of risk. The Yangmei Chemical Co is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  250.00  in Yangmei Chemical Co on December 5, 2024 and sell it today you would lose (40.00) from holding Yangmei Chemical Co or give up 16.0% of portfolio value over 90 days.

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

Chongqing Brewery Co  vs.  Yangmei Chemical Co

Chongqing Brewery

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chongqing Brewery Co 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Yangmei Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yangmei Chemical Co 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Chongqing Brewery and Yangmei Chemical

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

The idea behind Chongqing Brewery Co and Yangmei Chemical 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.