Correlation Between Hongrun Construction and China Mobile

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

By analyzing existing cross correlation between Hongrun Construction Group and China Mobile Limited, you can compare the effects of market volatilities on Hongrun Construction and China Mobile 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 Hongrun Construction with a short position of China Mobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hongrun Construction and China Mobile.

Diversification Opportunities for Hongrun Construction and China Mobile

0.47

Correlation Coefficient

Hongrun Construction  China Mobile

Very weak diversification

The 3 months correlation between Hongrun and China is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Hongrun Construction Group and China Mobile Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mobile Limited and Hongrun 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 Hongrun Construction Group are associated (or correlated) with China Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mobile Limited has no effect on the direction of Hongrun Construction i.e., Hongrun Construction and China Mobile go up and down completely randomly.

Pair Corralation between Hongrun Construction and China Mobile

Assuming the 90 days trading horizon Hongrun Construction is expected to generate 5.05 times less return on investment than China Mobile. In addition to that, Hongrun Construction is 1.23 times more volatile than China Mobile Limited. It trades about 0.01 of its total potential returns per unit of risk. China Mobile Limited is currently generating about 0.06 per unit of volatility. If you would invest  7,302  in China Mobile Limited on October 9, 2024 and sell it today you would earn a total of  3,813  from holding China Mobile Limited or generate 52.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Hongrun Construction Group  vs.  China Mobile Limited

Hongrun Construction

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hongrun Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

China Mobile Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Mobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hongrun Construction and China Mobile

The main advantage of trading using opposite Hongrun Construction and China Mobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hongrun Construction position performs unexpectedly, China Mobile 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 Mobile will offset losses from the drop in China Mobile's long position.

The idea behind Hongrun Construction Group and China Mobile Limited 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.