Correlation Between ITALIAN WINE and China Resources

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

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

Diversification Opportunities for ITALIAN WINE and China Resources

-0.55

Correlation Coefficient

ITALIAN WINE  China Resources

Excellent diversification

The 3 months correlation between ITALIAN and China is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding ITALIAN WINE BRANDS and China Resources Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Beer and ITALIAN WINE 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 ITALIAN WINE BRANDS 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 Beer has no effect on the direction of ITALIAN WINE i.e., ITALIAN WINE and China Resources go up and down completely randomly.

Pair Corralation between ITALIAN WINE and China Resources

Assuming the 90 days horizon ITALIAN WINE BRANDS is expected to generate 0.99 times more return on investment than China Resources. However, ITALIAN WINE BRANDS is 1.01 times less risky than China Resources. It trades about 0.03 of its potential returns per unit of risk. China Resources Beer is currently generating about -0.3 per unit of risk. If you would invest  2,220  in ITALIAN WINE BRANDS on October 8, 2024 and sell it today you would earn a total of  20.00  from holding ITALIAN WINE BRANDS or generate 0.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.75%
Values	Daily Returns

ITALIAN WINE BRANDS  vs.  China Resources Beer

ITALIAN WINE BRANDS

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days ITALIAN WINE BRANDS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, ITALIAN WINE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Resources Beer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Beer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ITALIAN WINE and China Resources

The main advantage of trading using opposite ITALIAN WINE and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITALIAN WINE 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 ITALIAN WINE BRANDS and China Resources Beer 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.