Correlation Between China Enterprise and Kweichow Moutai

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

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

Diversification Opportunities for China Enterprise and Kweichow Moutai

0.7

Correlation Coefficient

China Enterprise  Kweichow Moutai

Poor diversification

The 3 months correlation between China and Kweichow is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding China Enterprise Co and Kweichow Moutai Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kweichow Moutai and China Enterprise 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 China Enterprise Co are associated (or correlated) with Kweichow Moutai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kweichow Moutai has no effect on the direction of China Enterprise i.e., China Enterprise and Kweichow Moutai go up and down completely randomly.

Pair Corralation between China Enterprise and Kweichow Moutai

Assuming the 90 days trading horizon China Enterprise Co is expected to under-perform the Kweichow Moutai. In addition to that, China Enterprise is 2.65 times more volatile than Kweichow Moutai Co. It trades about -0.02 of its total potential returns per unit of risk. Kweichow Moutai Co is currently generating about 0.11 per unit of volatility. If you would invest  149,857  in Kweichow Moutai Co on September 26, 2024 and sell it today you would earn a total of  4,025  from holding Kweichow Moutai Co or generate 2.69% return on investment over 90 days.

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

China Enterprise Co  vs.  Kweichow Moutai Co

China Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Enterprise Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Enterprise is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kweichow Moutai

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with China Enterprise and Kweichow Moutai

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

The idea behind China Enterprise Co and Kweichow Moutai 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.