Correlation Between China Construction and Fujian Newland

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

Diversification Opportunities for China Construction and Fujian Newland

0.67

Correlation Coefficient

China Construction  Fujian Newland

Poor diversification

The 3 months correlation between China and Fujian is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Fujian Newland Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Newland Computer 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 Fujian Newland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Newland Computer has no effect on the direction of China Construction i.e., China Construction and Fujian Newland go up and down completely randomly.

Pair Corralation between China Construction and Fujian Newland

Assuming the 90 days trading horizon China Construction is expected to generate 3.52 times less return on investment than Fujian Newland. But when comparing it to its historical volatility, China Construction Bank is 2.45 times less risky than Fujian Newland. It trades about 0.16 of its potential returns per unit of risk. Fujian Newland Computer is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,272  in Fujian Newland Computer on September 23, 2024 and sell it today you would earn a total of  802.00  from holding Fujian Newland Computer or generate 63.05% return on investment over 90 days.

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

China Construction Bank  vs.  Fujian Newland Computer

China Construction Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Fujian Newland Computer

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fujian Newland Computer are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fujian Newland sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Construction and Fujian Newland

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

The idea behind China Construction Bank and Fujian Newland Computer 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.