Correlation Between Jinhui Liquor and Kweichow Moutai

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

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

Diversification Opportunities for Jinhui Liquor and Kweichow Moutai

0.66

Correlation Coefficient

Jinhui Liquor  Kweichow Moutai

Poor diversification

The 3 months correlation between Jinhui and Kweichow is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Jinhui Liquor 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 Jinhui Liquor 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 Jinhui Liquor 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 Jinhui Liquor i.e., Jinhui Liquor and Kweichow Moutai go up and down completely randomly.

Pair Corralation between Jinhui Liquor and Kweichow Moutai

Assuming the 90 days trading horizon Jinhui Liquor Co is expected to under-perform the Kweichow Moutai. But the stock apears to be less risky and, when comparing its historical volatility, Jinhui Liquor Co is 1.01 times less risky than Kweichow Moutai. The stock trades about -0.06 of its potential returns per unit of risk. The Kweichow Moutai Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  152,897  in Kweichow Moutai Co on December 27, 2024 and sell it today you would earn a total of  4,703  from holding Kweichow Moutai Co or generate 3.08% return on investment over 90 days.

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

Jinhui Liquor Co  vs.  Kweichow Moutai Co

Jinhui Liquor

Risk-Adjusted Performance

Very Weak

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

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 3 (%) 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 Jinhui Liquor and Kweichow Moutai

The main advantage of trading using opposite Jinhui Liquor and Kweichow Moutai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jinhui Liquor 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 Jinhui Liquor 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.

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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.