Correlation Between China Resources and PLAYMATES TOYS

Can any of the company-specific risk be diversified away by investing in both China Resources and PLAYMATES TOYS 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 PLAYMATES TOYS 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 PLAYMATES TOYS, you can compare the effects of market volatilities on China Resources and PLAYMATES TOYS 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 PLAYMATES TOYS. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Resources and PLAYMATES TOYS.

Diversification Opportunities for China Resources and PLAYMATES TOYS

0.38

Correlation Coefficient

China Resources  PLAYMATES TOYS

Weak diversification

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

Pair Corralation between China Resources and PLAYMATES TOYS

Assuming the 90 days horizon China Resources is expected to generate 14.03 times less return on investment than PLAYMATES TOYS. But when comparing it to its historical volatility, China Resources Beer is 1.61 times less risky than PLAYMATES TOYS. It trades about 0.01 of its potential returns per unit of risk. PLAYMATES TOYS is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4.47  in PLAYMATES TOYS on October 12, 2024 and sell it today you would earn a total of  2.13  from holding PLAYMATES TOYS or generate 47.65% return on investment over 90 days.

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

China Resources Beer  vs.  PLAYMATES TOYS

China Resources Beer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Beer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

PLAYMATES TOYS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PLAYMATES TOYS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PLAYMATES TOYS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with China Resources and PLAYMATES TOYS

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

The idea behind China Resources Beer and PLAYMATES TOYS 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.