Correlation Between China National and Lafargeholcim
Can any of the company-specific risk be diversified away by investing in both China National and Lafargeholcim 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 National and Lafargeholcim into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China National Building and Lafargeholcim Ltd ADR, you can compare the effects of market volatilities on China National and Lafargeholcim 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 National with a short position of Lafargeholcim. Check out your portfolio center. Please also check ongoing floating volatility patterns of China National and Lafargeholcim.
Diversification Opportunities for China National and Lafargeholcim
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between China and Lafargeholcim is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding China National Building and Lafargeholcim Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lafargeholcim ADR and China National 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 National Building are associated (or correlated) with Lafargeholcim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lafargeholcim ADR has no effect on the direction of China National i.e., China National and Lafargeholcim go up and down completely randomly.
Pair Corralation between China National and Lafargeholcim
Assuming the 90 days horizon China National is expected to generate 1.18 times less return on investment than Lafargeholcim. In addition to that, China National is 1.47 times more volatile than Lafargeholcim Ltd ADR. It trades about 0.12 of its total potential returns per unit of risk. Lafargeholcim Ltd ADR is currently generating about 0.22 per unit of volatility. If you would invest 1,906 in Lafargeholcim Ltd ADR on August 26, 2024 and sell it today you would earn a total of 121.00 from holding Lafargeholcim Ltd ADR or generate 6.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China National Building vs. Lafargeholcim Ltd ADR
Performance |
| Timeline |
| China National Building |
| Lafargeholcim ADR |
China National and Lafargeholcim Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China National and Lafargeholcim
The main advantage of trading using opposite China National and Lafargeholcim positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China National position performs unexpectedly, Lafargeholcim 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 Lafargeholcim will offset losses from the drop in Lafargeholcim's long position.The idea behind China National Building and Lafargeholcim Ltd ADR 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.| Lafargeholcim vs. Anhui Conch Cement | Lafargeholcim vs. Buzzi Unicem SpA | Lafargeholcim vs. Wienerberger Baustoffindustrie | Lafargeholcim vs. China National Building |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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