Correlation Between China Enterprise and China State

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

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

Diversification Opportunities for China Enterprise and China State

0.63

Correlation Coefficient

China Enterprise  China State

Poor diversification

The 3 months correlation between China and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Enterprise Co and China State Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China State Construction and China Enterprise 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 Enterprise Co are associated (or correlated) with China State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China State Construction has no effect on the direction of China Enterprise i.e., China Enterprise and China State go up and down completely randomly.

Pair Corralation between China Enterprise and China State

Assuming the 90 days trading horizon China Enterprise Co is expected to under-perform the China State. In addition to that, China Enterprise is 3.2 times more volatile than China State Construction. It trades about -0.02 of its total potential returns per unit of risk. China State Construction is currently generating about 0.11 per unit of volatility. If you would invest  589.00  in China State Construction on September 26, 2024 and sell it today you would earn a total of  13.00  from holding China State Construction or generate 2.21% return on investment over 90 days.

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

China Enterprise Co  vs.  China State Construction

China Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

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

China State Construction

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China State Construction are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China State may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Enterprise and China State

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

The idea behind China Enterprise Co and China State Construction 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.