Correlation Between Kweichow Moutai and China Vanke

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

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

Diversification Opportunities for Kweichow Moutai and China Vanke

0.73

Correlation Coefficient

Kweichow Moutai  China Vanke

Poor diversification

The 3 months correlation between Kweichow and China is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Kweichow Moutai Co and China Vanke Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Vanke and Kweichow Moutai 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 Kweichow Moutai Co are associated (or correlated) with China Vanke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Vanke has no effect on the direction of Kweichow Moutai i.e., Kweichow Moutai and China Vanke go up and down completely randomly.

Pair Corralation between Kweichow Moutai and China Vanke

Assuming the 90 days trading horizon Kweichow Moutai Co is expected to generate 0.43 times more return on investment than China Vanke. However, Kweichow Moutai Co is 2.3 times less risky than China Vanke. It trades about -0.02 of its potential returns per unit of risk. China Vanke Co is currently generating about -0.06 per unit of risk. If you would invest  152,500  in Kweichow Moutai Co on December 1, 2024 and sell it today you would lose (2,421) from holding Kweichow Moutai Co or give up 1.59% of portfolio value over 90 days.

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

Kweichow Moutai Co  vs.  China Vanke Co

Kweichow Moutai

Risk-Adjusted Performance

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.

China Vanke

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Vanke Co 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.

Pair Trading with Kweichow Moutai and China Vanke

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

The idea behind Kweichow Moutai Co and China Vanke 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.