Correlation Between China Construction and Chi Sheng

Can any of the company-specific risk be diversified away by investing in both China Construction and Chi Sheng 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 Chi Sheng 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 Chi Sheng Chemical, you can compare the effects of market volatilities on China Construction and Chi Sheng 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 Chi Sheng. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Chi Sheng.

Diversification Opportunities for China Construction and Chi Sheng

-0.6

Correlation Coefficient

China Construction  Chi Sheng

Excellent diversification

The 3 months correlation between China and Chi is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Chi Sheng Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chi Sheng Chemical 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 Chi Sheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chi Sheng Chemical has no effect on the direction of China Construction i.e., China Construction and Chi Sheng go up and down completely randomly.

Pair Corralation between China Construction and Chi Sheng

Assuming the 90 days trading horizon China Construction Bank is expected to under-perform the Chi Sheng. But the stock apears to be less risky and, when comparing its historical volatility, China Construction Bank is 1.76 times less risky than Chi Sheng. The stock trades about -0.02 of its potential returns per unit of risk. The Chi Sheng Chemical is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,710  in Chi Sheng Chemical on October 10, 2024 and sell it today you would earn a total of  105.00  from holding Chi Sheng Chemical or generate 3.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	42.83%
Values	Daily Returns

China Construction Bank  vs.  Chi Sheng Chemical

China Construction Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Construction Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, China Construction is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Chi Sheng Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chi Sheng Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chi Sheng may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Construction and Chi Sheng

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

The idea behind China Construction Bank and Chi Sheng Chemical 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.