Correlation Between China Resources and Origin Materials

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

Diversification Opportunities for China Resources and Origin Materials

-0.01

Correlation Coefficient

China Resources  Origin Materials

Good diversification

The 3 months correlation between China and Origin is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and Origin Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Origin Materials 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 Origin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Origin Materials has no effect on the direction of China Resources i.e., China Resources and Origin Materials go up and down completely randomly.

Pair Corralation between China Resources and Origin Materials

Assuming the 90 days horizon China Resources Beer is expected to under-perform the Origin Materials. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Resources Beer is 2.08 times less risky than Origin Materials. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Origin Materials is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  63.00  in Origin Materials on October 9, 2024 and sell it today you would earn a total of  60.00  from holding Origin Materials or generate 95.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

China Resources Beer  vs.  Origin Materials

China Resources Beer

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Origin Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Origin Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with China Resources and Origin Materials

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

The idea behind China Resources Beer and Origin Materials 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.