Correlation Between China Construction and Yong Shun

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

Diversification Opportunities for China Construction and Yong Shun

0.68

Correlation Coefficient

China Construction  Yong Shun

Poor diversification

The 3 months correlation between China and Yong is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Yong Shun Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yong Shun 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 Yong Shun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yong Shun Chemical has no effect on the direction of China Construction i.e., China Construction and Yong Shun go up and down completely randomly.

Pair Corralation between China Construction and Yong Shun

Assuming the 90 days trading horizon China Construction Bank is expected to generate 0.23 times more return on investment than Yong Shun. However, China Construction Bank is 4.33 times less risky than Yong Shun. It trades about -0.01 of its potential returns per unit of risk. Yong Shun Chemical is currently generating about -0.03 per unit of risk. If you would invest  1,440  in China Construction Bank on September 16, 2024 and sell it today you would lose (7.00) from holding China Construction Bank or give up 0.49% of portfolio value over 90 days.

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

China Construction Bank  vs.  Yong Shun 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Yong Shun Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yong Shun Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yong Shun is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Construction and Yong Shun

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

The idea behind China Construction Bank and Yong Shun 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.