Correlation Between China Resources and China Vanke

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

Diversification Opportunities for China Resources and China Vanke

0.53

Correlation Coefficient

China Resources  China Vanke

Very weak diversification

The 3 months correlation between China and China is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Land and China Vanke Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Vanke 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 Vanke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Vanke has no effect on the direction of China Resources i.e., China Resources and China Vanke go up and down completely randomly.

Pair Corralation between China Resources and China Vanke

Assuming the 90 days horizon China Resources Land is expected to generate 0.52 times more return on investment than China Vanke. However, China Resources Land is 1.91 times less risky than China Vanke. It trades about -0.24 of its potential returns per unit of risk. China Vanke Co is currently generating about -0.25 per unit of risk. If you would invest  3,340  in China Resources Land on October 12, 2024 and sell it today you would lose (490.00) from holding China Resources Land or give up 14.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

China Resources Land  vs.  China Vanke Co

China Resources Land

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Vanke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Vanke Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Resources and China Vanke

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

The idea behind China Resources Land and China Vanke 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.