Correlation Between China Bills and Sunfon Construction

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

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

Diversification Opportunities for China Bills and Sunfon Construction

-0.44

Correlation Coefficient

China Bills  Sunfon Construction

Very good diversification

The 3 months correlation between China and Sunfon is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding China Bills Finance and Sunfon Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunfon Construction and China Bills 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 Bills Finance are associated (or correlated) with Sunfon Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunfon Construction has no effect on the direction of China Bills i.e., China Bills and Sunfon Construction go up and down completely randomly.

Pair Corralation between China Bills and Sunfon Construction

Assuming the 90 days trading horizon China Bills Finance is expected to under-perform the Sunfon Construction. But the stock apears to be less risky and, when comparing its historical volatility, China Bills Finance is 2.09 times less risky than Sunfon Construction. The stock trades about -0.1 of its potential returns per unit of risk. The Sunfon Construction Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,000  in Sunfon Construction Co on October 6, 2024 and sell it today you would earn a total of  5.00  from holding Sunfon Construction Co or generate 0.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

China Bills Finance  vs.  Sunfon Construction Co

China Bills Finance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sunfon Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunfon Construction Co 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.

Pair Trading with China Bills and Sunfon Construction

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

The idea behind China Bills Finance and Sunfon Construction Co 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.