Correlation Between Tonghua Grape and China Express

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

By analyzing existing cross correlation between Tonghua Grape Wine and China Express Airlines, you can compare the effects of market volatilities on Tonghua Grape and China Express 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 Tonghua Grape with a short position of China Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tonghua Grape and China Express.

Diversification Opportunities for Tonghua Grape and China Express

0.77

Correlation Coefficient

Tonghua Grape  China Express

Poor diversification

The 3 months correlation between Tonghua and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tonghua Grape Wine and China Express Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Express Airlines and Tonghua Grape 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 Tonghua Grape Wine are associated (or correlated) with China Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Express Airlines has no effect on the direction of Tonghua Grape i.e., Tonghua Grape and China Express go up and down completely randomly.

Pair Corralation between Tonghua Grape and China Express

Assuming the 90 days trading horizon Tonghua Grape Wine is expected to generate 1.33 times more return on investment than China Express. However, Tonghua Grape is 1.33 times more volatile than China Express Airlines. It trades about 0.15 of its potential returns per unit of risk. China Express Airlines is currently generating about -0.26 per unit of risk. If you would invest  293.00  in Tonghua Grape Wine on September 22, 2024 and sell it today you would earn a total of  21.00  from holding Tonghua Grape Wine or generate 7.17% return on investment over 90 days.

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

Tonghua Grape Wine  vs.  China Express Airlines

Tonghua Grape Wine

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tonghua Grape sustained solid returns over the last few months and may actually be approaching a breakup point.

China Express Airlines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Express Airlines are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Express sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tonghua Grape and China Express

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

The idea behind Tonghua Grape Wine and China Express Airlines 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.