Correlation Between China Resources and China Overseas

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

By analyzing existing cross correlation between China Resources Land and China Overseas Land, you can compare the effects of market volatilities on China Resources and China Overseas 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 China Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Resources and China Overseas.

Diversification Opportunities for China Resources and China Overseas

0.26

Correlation Coefficient

China Resources  China Overseas

Modest diversification

The 3 months correlation between China and China is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Land and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land 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 Land are associated (or correlated) with China Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of China Resources i.e., China Resources and China Overseas go up and down completely randomly.

Pair Corralation between China Resources and China Overseas

Assuming the 90 days horizon China Resources Land is expected to under-perform the China Overseas. In addition to that, China Resources is 2.06 times more volatile than China Overseas Land. It trades about -0.04 of its total potential returns per unit of risk. China Overseas Land is currently generating about 0.0 per unit of volatility. If you would invest  1,102  in China Overseas Land on November 29, 2024 and sell it today you would lose (152.00) from holding China Overseas Land or give up 13.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	18.16%
Values	Daily Returns

China Resources Land  vs.  China Overseas Land

China Resources Land

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Resources Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

China Overseas Land

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Overseas Land are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, China Overseas may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with China Resources and China Overseas

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

The idea behind China Resources Land and China Overseas Land 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.