Correlation Between United Natural and China Resources

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

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

Diversification Opportunities for United Natural and China Resources

0.51

Correlation Coefficient

United Natural  China Resources

Very weak diversification

The 3 months correlation between United and China is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding United Natural Foods 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 United Natural 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 United Natural Foods 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 United Natural i.e., United Natural and China Resources go up and down completely randomly.

Pair Corralation between United Natural and China Resources

Given the investment horizon of 90 days United Natural is expected to generate 2.01 times less return on investment than China Resources. But when comparing it to its historical volatility, United Natural Foods is 2.4 times less risky than China Resources. It trades about 0.15 of its potential returns per unit of risk. China Resources Beer is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  261.00  in China Resources Beer on October 26, 2024 and sell it today you would earn a total of  32.00  from holding China Resources Beer or generate 12.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

United Natural Foods  vs.  China Resources Beer

United Natural Foods

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Natural Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical and fundamental indicators, United Natural demonstrated solid returns over the last few months and may actually be approaching a breakup point.

China Resources Beer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 5 (%) 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.

Pair Trading with United Natural and China Resources

The main advantage of trading using opposite United Natural and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Natural 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 United Natural Foods 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.