Correlation Between Shenzhen Zhongzhuang and China Construction

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

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

Diversification Opportunities for Shenzhen Zhongzhuang and China Construction

0.16

Correlation Coefficient

Shenzhen Zhongzhuang  China Construction

Average diversification

The 3 months correlation between Shenzhen and China is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Zhongzhuang Construct 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 Shenzhen Zhongzhuang 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 Shenzhen Zhongzhuang Construction 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 Shenzhen Zhongzhuang i.e., Shenzhen Zhongzhuang and China Construction go up and down completely randomly.

Pair Corralation between Shenzhen Zhongzhuang and China Construction

Assuming the 90 days trading horizon Shenzhen Zhongzhuang Construction is expected to generate 1.93 times more return on investment than China Construction. However, Shenzhen Zhongzhuang is 1.93 times more volatile than China Construction Bank. It trades about 0.42 of its potential returns per unit of risk. China Construction Bank is currently generating about 0.07 per unit of risk. If you would invest  186.00  in Shenzhen Zhongzhuang Construction on September 2, 2024 and sell it today you would earn a total of  219.00  from holding Shenzhen Zhongzhuang Construction or generate 117.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Shenzhen Zhongzhuang Construct  vs.  China Construction Bank

Shenzhen Zhongzhuang

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhongzhuang Construction are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Zhongzhuang sustained solid returns over the last few months and may actually be approaching a breakup point.

China Construction Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shenzhen Zhongzhuang and China Construction

The main advantage of trading using opposite Shenzhen Zhongzhuang and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shenzhen Zhongzhuang 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.

The idea behind Shenzhen Zhongzhuang Construction and China Construction Bank 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.