Correlation Between China Construction and Industrial
Can any of the company-specific risk be diversified away by investing in both China Construction and Industrial 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 Industrial 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 Industrial and Commercial, you can compare the effects of market volatilities on China Construction and Industrial 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 Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Industrial.
Diversification Opportunities for China Construction and Industrial
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Industrial is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial 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 Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of China Construction i.e., China Construction and Industrial go up and down completely randomly.
Pair Corralation between China Construction and Industrial
Assuming the 90 days horizon China Construction is expected to generate 1.0 times less return on investment than Industrial. But when comparing it to its historical volatility, China Construction Bank is 1.0 times less risky than Industrial. It trades about 0.05 of its potential returns per unit of risk. Industrial and Commercial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 50.00 in Industrial and Commercial on August 23, 2024 and sell it today you would earn a total of 11.00 from holding Industrial and Commercial or generate 22.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 93.39% |
| Values | Daily Returns |
China Construction Bank vs. Industrial and Commercial
Performance |
| Timeline |
| China Construction Bank |
| Industrial and Commercial |
China Construction and Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Construction and Industrial
The main advantage of trading using opposite China Construction and Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Construction position performs unexpectedly, Industrial 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 Industrial will offset losses from the drop in Industrial's long position.| China Construction vs. Svenska Handelsbanken PK | China Construction vs. ANZ Group Holdings | China Construction vs. Westpac Banking | China Construction vs. National Australia Bank |
| Industrial vs. Svenska Handelsbanken PK | Industrial vs. ANZ Group Holdings | Industrial vs. Westpac Banking | Industrial vs. National Australia Bank |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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