Correlation Between NORTHEAST UTILITIES and China Resources

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

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

Diversification Opportunities for NORTHEAST UTILITIES and China Resources

0.34

Correlation Coefficient

NORTHEAST UTILITIES  China Resources

Weak diversification

The 3 months correlation between NORTHEAST and China is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding NORTHEAST UTILITIES 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 NORTHEAST UTILITIES 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 NORTHEAST UTILITIES 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 NORTHEAST UTILITIES i.e., NORTHEAST UTILITIES and China Resources go up and down completely randomly.

Pair Corralation between NORTHEAST UTILITIES and China Resources

Assuming the 90 days trading horizon NORTHEAST UTILITIES is expected to under-perform the China Resources. But the stock apears to be less risky and, when comparing its historical volatility, NORTHEAST UTILITIES is 2.55 times less risky than China Resources. The stock trades about -0.01 of its potential returns per unit of risk. The China Resources Beer is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  270.00  in China Resources Beer on December 5, 2024 and sell it today you would earn a total of  26.00  from holding China Resources Beer or generate 9.63% return on investment over 90 days.

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

NORTHEAST UTILITIES  vs.  China Resources Beer

NORTHEAST UTILITIES

Risk-Adjusted Performance

Very Weak

Over the last 90 days NORTHEAST UTILITIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, NORTHEAST UTILITIES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

China Resources Beer

Risk-Adjusted Performance

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 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 NORTHEAST UTILITIES and China Resources

The main advantage of trading using opposite NORTHEAST UTILITIES and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NORTHEAST UTILITIES 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 NORTHEAST UTILITIES 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.