Correlation Between China Railway and Chongqing Brewery

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

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

Diversification Opportunities for China Railway and Chongqing Brewery

0.33

Correlation Coefficient

China Railway  Chongqing Brewery

Weak diversification

The 3 months correlation between China and Chongqing is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Chongqing Brewery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Brewery and China Railway 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 Railway Construction are associated (or correlated) with Chongqing Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Brewery has no effect on the direction of China Railway i.e., China Railway and Chongqing Brewery go up and down completely randomly.

Pair Corralation between China Railway and Chongqing Brewery

Assuming the 90 days trading horizon China Railway Construction is expected to under-perform the Chongqing Brewery. In addition to that, China Railway is 1.34 times more volatile than Chongqing Brewery Co. It trades about -0.11 of its total potential returns per unit of risk. Chongqing Brewery Co is currently generating about -0.11 per unit of volatility. If you would invest  6,525  in Chongqing Brewery Co on October 9, 2024 and sell it today you would lose (508.00) from holding Chongqing Brewery Co or give up 7.79% of portfolio value over 90 days.

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

China Railway Construction  vs.  Chongqing Brewery Co

China Railway Constr

Risk-Adjusted Performance

0 of 100

Very Weak

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

Chongqing Brewery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chongqing Brewery Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Chongqing Brewery 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 Railway and Chongqing Brewery

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

The idea behind China Railway Construction and Chongqing Brewery 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.