Correlation Between China Minsheng and Huitong Construction

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

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

Diversification Opportunities for China Minsheng and Huitong Construction

0.68

Correlation Coefficient

China Minsheng  Huitong Construction

Poor diversification

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

Pair Corralation between China Minsheng and Huitong Construction

Assuming the 90 days trading horizon China Minsheng Banking is expected to under-perform the Huitong Construction. But the stock apears to be less risky and, when comparing its historical volatility, China Minsheng Banking is 2.05 times less risky than Huitong Construction. The stock trades about -0.07 of its potential returns per unit of risk. The Huitong Construction Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  446.00  in Huitong Construction Group on December 30, 2024 and sell it today you would earn a total of  34.00  from holding Huitong Construction Group or generate 7.62% return on investment over 90 days.

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

China Minsheng Banking  vs.  Huitong Construction Group

China Minsheng Banking

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Minsheng Banking has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Minsheng is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Huitong Construction

Risk-Adjusted Performance

Modest

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

Pair Trading with China Minsheng and Huitong Construction

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

The idea behind China Minsheng Banking and Huitong Construction Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.