Correlation Between Tibet Huayu and China Construction

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

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

Diversification Opportunities for Tibet Huayu and China Construction

-0.31

Correlation Coefficient

Tibet Huayu  China Construction

Very good diversification

The 3 months correlation between Tibet and China is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining 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 Tibet Huayu 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 Tibet Huayu Mining 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 Tibet Huayu i.e., Tibet Huayu and China Construction go up and down completely randomly.

Pair Corralation between Tibet Huayu and China Construction

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to generate 2.93 times more return on investment than China Construction. However, Tibet Huayu is 2.93 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 0.02 per unit of risk. If you would invest  1,222  in Tibet Huayu Mining on October 24, 2024 and sell it today you would earn a total of  41.00  from holding Tibet Huayu Mining or generate 3.36% return on investment over 90 days.

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

Tibet Huayu Mining  vs.  China Construction Bank

Tibet Huayu Mining

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tibet Huayu Mining are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tibet Huayu may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Construction Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tibet Huayu and China Construction

The main advantage of trading using opposite Tibet Huayu and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tibet Huayu 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 Tibet Huayu Mining 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.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.