Correlation Between China Construction and Tokyo Electron
Can any of the company-specific risk be diversified away by investing in both China Construction and Tokyo Electron 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 Construction and Tokyo Electron into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Construction Bank and Tokyo Electron Limited, you can compare the effects of market volatilities on China Construction and Tokyo Electron 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 Construction with a short position of Tokyo Electron. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Tokyo Electron.
Diversification Opportunities for China Construction and Tokyo Electron
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Tokyo is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Tokyo Electron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron and China Construction 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 Construction Bank are associated (or correlated) with Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of China Construction i.e., China Construction and Tokyo Electron go up and down completely randomly.
Pair Corralation between China Construction and Tokyo Electron
Assuming the 90 days horizon China Construction is expected to generate 2.9 times less return on investment than Tokyo Electron. But when comparing it to its historical volatility, China Construction Bank is 2.32 times less risky than Tokyo Electron. It trades about 0.13 of its potential returns per unit of risk. Tokyo Electron Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 14,795 in Tokyo Electron Limited on November 4, 2024 and sell it today you would earn a total of 1,695 from holding Tokyo Electron Limited or generate 11.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Construction Bank vs. Tokyo Electron Limited
Performance |
| Timeline |
| China Construction Bank |
| Tokyo Electron |
China Construction and Tokyo Electron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Construction and Tokyo Electron
The main advantage of trading using opposite China Construction and Tokyo Electron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Construction position performs unexpectedly, Tokyo Electron 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 Tokyo Electron will offset losses from the drop in Tokyo Electron's long position.| China Construction vs. GRUPO CARSO A1 | China Construction vs. STORE ELECTRONIC | China Construction vs. KIMBALL ELECTRONICS | China Construction vs. SK TELECOM TDADR |
| Tokyo Electron vs. ASML HOLDING NY | Tokyo Electron vs. ASML Holding NV | Tokyo Electron vs. ASML Holding NV | Tokyo Electron vs. Applied Materials |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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