Correlation Between China Construction and Hengli Industrial

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

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

Diversification Opportunities for China Construction and Hengli Industrial

-0.12

Correlation Coefficient

China Construction  Hengli Industrial

Good diversification

The 3 months correlation between China and Hengli is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Hengli Industrial Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Industrial and China Construction 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 Construction Bank are associated (or correlated) with Hengli Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Industrial has no effect on the direction of China Construction i.e., China Construction and Hengli Industrial go up and down completely randomly.

Pair Corralation between China Construction and Hengli Industrial

Assuming the 90 days trading horizon China Construction is expected to generate 3.73 times less return on investment than Hengli Industrial. But when comparing it to its historical volatility, China Construction Bank is 2.59 times less risky than Hengli Industrial. It trades about 0.07 of its potential returns per unit of risk. Hengli Industrial Development is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  166.00  in Hengli Industrial Development on October 6, 2024 and sell it today you would earn a total of  35.00  from holding Hengli Industrial Development or generate 21.08% return on investment over 90 days.

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

China Construction Bank  vs.  Hengli Industrial Development

China Construction Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 5 (%) 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.

Hengli Industrial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Industrial Development are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Construction and Hengli Industrial

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

The idea behind China Construction Bank and Hengli Industrial Development 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.