Correlation Between Weltrend Semiconductor and China Construction

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

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

Diversification Opportunities for Weltrend Semiconductor and China Construction

0.67

Correlation Coefficient

Weltrend Semiconductor  China Construction

Poor diversification

The 3 months correlation between Weltrend and China is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Weltrend Semiconductor 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 Weltrend Semiconductor 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 Weltrend Semiconductor 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 Weltrend Semiconductor i.e., Weltrend Semiconductor and China Construction go up and down completely randomly.

Pair Corralation between Weltrend Semiconductor and China Construction

Assuming the 90 days trading horizon Weltrend Semiconductor is expected to generate 2.74 times more return on investment than China Construction. However, Weltrend Semiconductor is 2.74 times more volatile than China Construction Bank. It trades about 0.03 of its potential returns per unit of risk. China Construction Bank is currently generating about -0.03 per unit of risk. If you would invest  4,635  in Weltrend Semiconductor on October 4, 2024 and sell it today you would earn a total of  905.00  from holding Weltrend Semiconductor or generate 19.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	42.08%
Values	Daily Returns

Weltrend Semiconductor  vs.  China Construction Bank

Weltrend Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weltrend Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

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.

Pair Trading with Weltrend Semiconductor and China Construction

The main advantage of trading using opposite Weltrend Semiconductor and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Weltrend Semiconductor 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 Weltrend Semiconductor 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.