Correlation Between China Resources and Food Life

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

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

Diversification Opportunities for China Resources and Food Life

0.38

Correlation Coefficient

China Resources  Food Life

Weak diversification

The 3 months correlation between China and Food is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and Food Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Food Life Companies and China Resources 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 Resources Beer are associated (or correlated) with Food Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Food Life Companies has no effect on the direction of China Resources i.e., China Resources and Food Life go up and down completely randomly.

Pair Corralation between China Resources and Food Life

Assuming the 90 days horizon China Resources Beer is expected to under-perform the Food Life. In addition to that, China Resources is 1.25 times more volatile than Food Life Companies. It trades about -0.01 of its total potential returns per unit of risk. Food Life Companies is currently generating about 0.02 per unit of volatility. If you would invest  1,910  in Food Life Companies on September 4, 2024 and sell it today you would earn a total of  250.00  from holding Food Life Companies or generate 13.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

China Resources Beer  vs.  Food Life Companies

China Resources Beer

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Food Life Companies

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and Food Life

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

The idea behind China Resources Beer and Food Life Companies 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.