Correlation Between Shanghai Pudong and Kweichow Moutai

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Can any of the company-specific risk be diversified away by investing in both Shanghai Pudong and Kweichow Moutai 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 Shanghai Pudong and Kweichow Moutai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shanghai Pudong Development and Kweichow Moutai Co, you can compare the effects of market volatilities on Shanghai Pudong and Kweichow Moutai 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 Shanghai Pudong with a short position of Kweichow Moutai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Pudong and Kweichow Moutai.

Diversification Opportunities for Shanghai Pudong and Kweichow Moutai

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Shanghai and Kweichow is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Pudong Development and Kweichow Moutai Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kweichow Moutai and Shanghai Pudong 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 Shanghai Pudong Development are associated (or correlated) with Kweichow Moutai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kweichow Moutai has no effect on the direction of Shanghai Pudong i.e., Shanghai Pudong and Kweichow Moutai go up and down completely randomly.

Pair Corralation between Shanghai Pudong and Kweichow Moutai

Assuming the 90 days trading horizon Shanghai Pudong Development is expected to generate 0.74 times more return on investment than Kweichow Moutai. However, Shanghai Pudong Development is 1.36 times less risky than Kweichow Moutai. It trades about 0.06 of its potential returns per unit of risk. Kweichow Moutai Co is currently generating about 0.0 per unit of risk. If you would invest  704.00  in Shanghai Pudong Development on August 26, 2024 and sell it today you would earn a total of  244.00  from holding Shanghai Pudong Development or generate 34.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Shanghai Pudong Development  vs.  Kweichow Moutai Co

 Performance 
       Timeline  
Shanghai Pudong Deve 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pudong Development are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Pudong may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Kweichow Moutai 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kweichow Moutai may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Shanghai Pudong and Kweichow Moutai Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shanghai Pudong and Kweichow Moutai

The main advantage of trading using opposite Shanghai Pudong and Kweichow Moutai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Pudong position performs unexpectedly, Kweichow Moutai 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 Kweichow Moutai will offset losses from the drop in Kweichow Moutai's long position.
The idea behind Shanghai Pudong Development and Kweichow Moutai Co 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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