Correlation Between Berkeley Energy and China Resources

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

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

Diversification Opportunities for Berkeley Energy and China Resources

0.65

Correlation Coefficient

Berkeley Energy  China Resources

Poor diversification

The 3 months correlation between Berkeley and China is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Berkeley Energy 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 Berkeley Energy 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 Berkeley Energy 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 Berkeley Energy i.e., Berkeley Energy and China Resources go up and down completely randomly.

Pair Corralation between Berkeley Energy and China Resources

Assuming the 90 days horizon Berkeley Energy is expected to generate 5.04 times less return on investment than China Resources. But when comparing it to its historical volatility, Berkeley Energy is 1.18 times less risky than China Resources. It trades about 0.01 of its potential returns per unit of risk. China Resources Power is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,732  in China Resources Power on September 23, 2024 and sell it today you would earn a total of  1,018  from holding China Resources Power or generate 37.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	66.67%
Values	Daily Returns

Berkeley Energy  vs.  China Resources Power

Berkeley Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkeley Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Berkeley Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Resources Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Berkeley Energy and China Resources

The main advantage of trading using opposite Berkeley Energy and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkeley Energy 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 Berkeley Energy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.