Correlation Between China Resources and DevEx Resources

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

Diversification Opportunities for China Resources and DevEx Resources

-0.14

Correlation Coefficient

China Resources  DevEx Resources

Good diversification

The 3 months correlation between China and DevEx is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and DevEx Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DevEx Resources 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 DevEx Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DevEx Resources has no effect on the direction of China Resources i.e., China Resources and DevEx Resources go up and down completely randomly.

Pair Corralation between China Resources and DevEx Resources

Assuming the 90 days horizon China Resources is expected to generate 12.8 times less return on investment than DevEx Resources. But when comparing it to its historical volatility, China Resources Beer is 3.71 times less risky than DevEx Resources. It trades about 0.02 of its potential returns per unit of risk. DevEx Resources Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4.80  in DevEx Resources Limited on December 20, 2024 and sell it today you would earn a total of  0.80  from holding DevEx Resources Limited or generate 16.67% return on investment over 90 days.

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

China Resources Beer  vs.  DevEx Resources Limited

China Resources Beer

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, China Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

DevEx Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DevEx Resources Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DevEx Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and DevEx Resources

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

The idea behind China Resources Beer and DevEx Resources Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.