Correlation Between China Life and Wuliangye Yibin

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

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

Diversification Opportunities for China Life and Wuliangye Yibin

0.94

Correlation Coefficient

China Life  Wuliangye Yibin

Almost no diversification

The 3 months correlation between China and Wuliangye is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding China Life Insurance and Wuliangye Yibin Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuliangye Yibin and China Life 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 Life Insurance are associated (or correlated) with Wuliangye Yibin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuliangye Yibin has no effect on the direction of China Life i.e., China Life and Wuliangye Yibin go up and down completely randomly.

Pair Corralation between China Life and Wuliangye Yibin

Assuming the 90 days trading horizon China Life is expected to generate 1.43 times less return on investment than Wuliangye Yibin. In addition to that, China Life is 1.01 times more volatile than Wuliangye Yibin Co. It trades about 0.1 of its total potential returns per unit of risk. Wuliangye Yibin Co is currently generating about 0.14 per unit of volatility. If you would invest  11,229  in Wuliangye Yibin Co on September 21, 2024 and sell it today you would earn a total of  3,126  from holding Wuliangye Yibin Co or generate 27.84% return on investment over 90 days.

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

China Life Insurance  vs.  Wuliangye Yibin Co

China Life Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Wuliangye Yibin

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wuliangye Yibin Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuliangye Yibin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Life and Wuliangye Yibin

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

The idea behind China Life Insurance and Wuliangye Yibin 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.