Correlation Between Bank of China and Kweichow Moutai

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

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

Diversification Opportunities for Bank of China and Kweichow Moutai

0.61

Correlation Coefficient

Bank of China  Kweichow Moutai

Poor diversification

The 3 months correlation between Bank and Kweichow is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bank of China and Kweichow Moutai Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kweichow Moutai and Bank of China 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 Bank of China 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 Bank of China i.e., Bank of China and Kweichow Moutai go up and down completely randomly.

Pair Corralation between Bank of China and Kweichow Moutai

Assuming the 90 days trading horizon Bank of China is expected to generate 1.78 times less return on investment than Kweichow Moutai. But when comparing it to its historical volatility, Bank of China is 1.92 times less risky than Kweichow Moutai. It trades about 0.14 of its potential returns per unit of risk. Kweichow Moutai Co is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  126,690  in Kweichow Moutai Co on September 16, 2024 and sell it today you would earn a total of  25,210  from holding Kweichow Moutai Co or generate 19.9% return on investment over 90 days.

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

Bank of China  vs.  Kweichow Moutai Co

Bank of China

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Kweichow Moutai

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kweichow Moutai Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kweichow Moutai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of China and Kweichow Moutai

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