Correlation Between Tianjin Realty and China Building

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

By analyzing existing cross correlation between Tianjin Realty Development and China Building Material, you can compare the effects of market volatilities on Tianjin Realty and China Building 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 Tianjin Realty with a short position of China Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tianjin Realty and China Building.

Diversification Opportunities for Tianjin Realty and China Building

0.75

Correlation Coefficient

Tianjin Realty  China Building

Poor diversification

The 3 months correlation between Tianjin and China is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Realty Development and China Building Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Building Material and Tianjin Realty 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 Tianjin Realty Development are associated (or correlated) with China Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Building Material has no effect on the direction of Tianjin Realty i.e., Tianjin Realty and China Building go up and down completely randomly.

Pair Corralation between Tianjin Realty and China Building

Assuming the 90 days trading horizon Tianjin Realty Development is expected to generate 1.58 times more return on investment than China Building. However, Tianjin Realty is 1.58 times more volatile than China Building Material. It trades about 0.15 of its potential returns per unit of risk. China Building Material is currently generating about -0.01 per unit of risk. If you would invest  197.00  in Tianjin Realty Development on October 6, 2024 and sell it today you would earn a total of  96.00  from holding Tianjin Realty Development or generate 48.73% return on investment over 90 days.

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

Tianjin Realty Development  vs.  China Building Material

Tianjin Realty Devel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Realty Development are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Realty sustained solid returns over the last few months and may actually be approaching a breakup point.

China Building Material

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tianjin Realty and China Building

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

The idea behind Tianjin Realty Development and China Building Material 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.