Correlation Between Iconic Brands and China Tontine

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

By analyzing existing cross correlation between Iconic Brands and China Tontine Wines, you can compare the effects of market volatilities on Iconic Brands and China Tontine 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 Iconic Brands with a short position of China Tontine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iconic Brands and China Tontine.

Diversification Opportunities for Iconic Brands and China Tontine

1.0

Correlation Coefficient

Iconic Brands  China Tontine

No risk reduction

The 3 months correlation between Iconic and China is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Iconic Brands and China Tontine Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Tontine Wines and Iconic Brands 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 Iconic Brands are associated (or correlated) with China Tontine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Tontine Wines has no effect on the direction of Iconic Brands i.e., Iconic Brands and China Tontine go up and down completely randomly.

Pair Corralation between Iconic Brands and China Tontine

Given the investment horizon of 90 days Iconic Brands is expected to generate 1.41 times more return on investment than China Tontine. However, Iconic Brands is 1.41 times more volatile than China Tontine Wines. It trades about 0.09 of its potential returns per unit of risk. China Tontine Wines is currently generating about 0.08 per unit of risk. If you would invest  6.50  in Iconic Brands on December 4, 2024 and sell it today you would lose (6.49) from holding Iconic Brands or give up 99.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	72.17%
Values	Daily Returns

Iconic Brands  vs.  China Tontine Wines

Iconic Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iconic Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Iconic Brands is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

China Tontine Wines

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Iconic Brands and China Tontine

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

The idea behind Iconic Brands and China Tontine Wines 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.