Correlation Between Kweichow Moutai and Ningbo Kangqiang

Can any of the company-specific risk be diversified away by investing in both Kweichow Moutai and Ningbo Kangqiang 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 Ningbo Kangqiang 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 Ningbo Kangqiang Electronics, you can compare the effects of market volatilities on Kweichow Moutai and Ningbo Kangqiang 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 Ningbo Kangqiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kweichow Moutai and Ningbo Kangqiang.

Diversification Opportunities for Kweichow Moutai and Ningbo Kangqiang

0.74

Correlation Coefficient

Kweichow Moutai  Ningbo Kangqiang

Poor diversification

The 3 months correlation between Kweichow and Ningbo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Kweichow Moutai Co and Ningbo Kangqiang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Kangqiang Ele 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 Ningbo Kangqiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Kangqiang Ele has no effect on the direction of Kweichow Moutai i.e., Kweichow Moutai and Ningbo Kangqiang go up and down completely randomly.

Pair Corralation between Kweichow Moutai and Ningbo Kangqiang

Assuming the 90 days trading horizon Kweichow Moutai is expected to generate 3.75 times less return on investment than Ningbo Kangqiang. But when comparing it to its historical volatility, Kweichow Moutai Co is 1.37 times less risky than Ningbo Kangqiang. It trades about 0.07 of its potential returns per unit of risk. Ningbo Kangqiang Electronics is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,053  in Ningbo Kangqiang Electronics on September 2, 2024 and sell it today you would earn a total of  480.00  from holding Ningbo Kangqiang Electronics or generate 45.58% return on investment over 90 days.

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

Kweichow Moutai Co  vs.  Ningbo Kangqiang Electronics

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 January 2025.

Ningbo Kangqiang Ele

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Kweichow Moutai and Ningbo Kangqiang

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

The idea behind Kweichow Moutai Co and Ningbo Kangqiang Electronics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.