Correlation Between China Construction and Changchun High

Can any of the company-specific risk be diversified away by investing in both China Construction and Changchun High 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 Changchun High 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 Changchun High New, you can compare the effects of market volatilities on China Construction and Changchun High 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 Changchun High. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Changchun High.

Diversification Opportunities for China Construction and Changchun High

-0.6

Correlation Coefficient

China Construction  Changchun High

Excellent diversification

The 3 months correlation between China and Changchun is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Changchun High New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun High New 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 Changchun High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun High New has no effect on the direction of China Construction i.e., China Construction and Changchun High go up and down completely randomly.

Pair Corralation between China Construction and Changchun High

Assuming the 90 days trading horizon China Construction Bank is expected to generate 1.06 times more return on investment than Changchun High. However, China Construction is 1.06 times more volatile than Changchun High New. It trades about 0.08 of its potential returns per unit of risk. Changchun High New is currently generating about -0.11 per unit of risk. If you would invest  804.00  in China Construction Bank on November 28, 2024 and sell it today you would earn a total of  46.00  from holding China Construction Bank or generate 5.72% return on investment over 90 days.

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

China Construction Bank  vs.  Changchun High New

China Construction Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Changchun High New

Risk-Adjusted Performance

Very Weak

Over the last 90 days Changchun High New has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Construction and Changchun High

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

The idea behind China Construction Bank and Changchun High New 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 Global Correlations module to find global opportunities by holding instruments from different markets.