Correlation Between Kweichow Moutai and China Pacific

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

Diversification Opportunities for Kweichow Moutai and China Pacific

0.85

Correlation Coefficient

Kweichow Moutai  China Pacific

Very poor diversification

The 3 months correlation between Kweichow and China is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Kweichow Moutai Co and China Pacific Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pacific Insurance 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 Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pacific Insurance has no effect on the direction of Kweichow Moutai i.e., Kweichow Moutai and China Pacific go up and down completely randomly.

Pair Corralation between Kweichow Moutai and China Pacific

Assuming the 90 days trading horizon Kweichow Moutai Co is expected to under-perform the China Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Kweichow Moutai Co is 1.6 times less risky than China Pacific. The stock trades about -0.26 of its potential returns per unit of risk. The China Pacific Insurance is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  3,401  in China Pacific Insurance on October 27, 2024 and sell it today you would lose (149.00) from holding China Pacific Insurance or give up 4.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Kweichow Moutai Co  vs.  China Pacific Insurance

Kweichow Moutai

Risk-Adjusted Performance

0 of 100

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 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.

China Pacific Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Pacific Insurance 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Kweichow Moutai and China Pacific

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

The idea behind Kweichow Moutai Co and China Pacific Insurance 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.