Correlation Between Walgreens Boots and China Resources

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

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

Diversification Opportunities for Walgreens Boots and China Resources

0.2

Correlation Coefficient

Walgreens Boots  China Resources

Modest diversification

The 3 months correlation between Walgreens and China is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance 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 Walgreens Boots 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 Walgreens Boots Alliance 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 Walgreens Boots i.e., Walgreens Boots and China Resources go up and down completely randomly.

Pair Corralation between Walgreens Boots and China Resources

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to under-perform the China Resources. But the stock apears to be less risky and, when comparing its historical volatility, Walgreens Boots Alliance is 1.14 times less risky than China Resources. The stock trades about -0.07 of its potential returns per unit of risk. The China Resources Power is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  58.00  in China Resources Power on September 22, 2024 and sell it today you would earn a total of  176.00  from holding China Resources Power or generate 303.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.02%
Values	Daily Returns

Walgreens Boots Alliance  vs.  China Resources Power

Walgreens Boots Alliance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Walgreens Boots sustained solid returns over the last few months and may actually be approaching a breakup point.

China Resources Power

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Walgreens Boots and China Resources

The main advantage of trading using opposite Walgreens Boots and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walgreens Boots 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 Walgreens Boots Alliance 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.