Correlation Between Dairy Farm and China Resources

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

By analyzing existing cross correlation between Dairy Farm International and China Resources Power, you can compare the effects of market volatilities on Dairy Farm and China 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 Dairy Farm with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dairy Farm and China Resources.

Diversification Opportunities for Dairy Farm and China Resources

-0.67

Correlation Coefficient

Dairy Farm  China Resources

Excellent diversification

The 3 months correlation between Dairy and China is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dairy Farm International and China Resources Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Power and Dairy Farm 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 Dairy Farm International are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Power has no effect on the direction of Dairy Farm i.e., Dairy Farm and China Resources go up and down completely randomly.

Pair Corralation between Dairy Farm and China Resources

Assuming the 90 days trading horizon Dairy Farm International is expected to under-perform the China Resources. In addition to that, Dairy Farm is 1.21 times more volatile than China Resources Power. It trades about -0.24 of its total potential returns per unit of risk. China Resources Power is currently generating about 0.18 per unit of volatility. If you would invest  213.00  in China Resources Power on October 1, 2024 and sell it today you would earn a total of  11.00  from holding China Resources Power or generate 5.16% return on investment over 90 days.

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

Dairy Farm International  vs.  China Resources Power

Dairy Farm International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dairy Farm reported solid returns over the last few months and may actually be approaching a breakup point.

China Resources Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dairy Farm and China Resources

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

The idea behind Dairy Farm International and China Resources Power 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.