Correlation Between China Metal and China Construction
Can any of the company-specific risk be diversified away by investing in both China Metal and China Construction 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 China Metal and China Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Metal Products and China Construction Bank, you can compare the effects of market volatilities on China Metal and China Construction 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 China Metal with a short position of China Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Metal and China Construction.
Diversification Opportunities for China Metal and China Construction
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between China and China is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank and China Metal 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 China Metal Products are associated (or correlated) with China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of China Metal i.e., China Metal and China Construction go up and down completely randomly.
Pair Corralation between China Metal and China Construction
Assuming the 90 days trading horizon China Metal Products is expected to under-perform the China Construction. In addition to that, China Metal is 3.75 times more volatile than China Construction Bank. It trades about -0.19 of its total potential returns per unit of risk. China Construction Bank is currently generating about -0.13 per unit of volatility. If you would invest 1,448 in China Construction Bank on September 1, 2024 and sell it today you would lose (23.00) from holding China Construction Bank or give up 1.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Metal Products vs. China Construction Bank
Performance |
| Timeline |
| China Metal Products |
| China Construction Bank |
China Metal and China Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Metal and China Construction
The main advantage of trading using opposite China Metal and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Metal position performs unexpectedly, China Construction 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 Construction will offset losses from the drop in China Construction's long position.| China Metal vs. Basso Industry Corp | China Metal vs. Chung Hsin Electric Machinery | China Metal vs. TYC Brother Industrial | China Metal vs. TECO Electric Machinery |
| China Construction vs. Taiwan Semiconductor Manufacturing | China Construction vs. Hon Hai Precision | China Construction vs. MediaTek | China Construction vs. Chunghwa Telecom Co |
Check out your portfolio center.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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