Correlation Between China Construction and Gotion High

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

Diversification Opportunities for China Construction and Gotion High

0.03

Correlation Coefficient

China Construction  Gotion High

Significant diversification

The 3 months correlation between China and Gotion is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Gotion High tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotion High tech 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 Gotion High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotion High tech has no effect on the direction of China Construction i.e., China Construction and Gotion High go up and down completely randomly.

Pair Corralation between China Construction and Gotion High

Assuming the 90 days trading horizon China Construction is expected to generate 1.26 times less return on investment than Gotion High. But when comparing it to its historical volatility, China Construction Bank is 1.65 times less risky than Gotion High. It trades about 0.08 of its potential returns per unit of risk. Gotion High tech is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,866  in Gotion High tech on October 1, 2024 and sell it today you would earn a total of  316.00  from holding Gotion High tech or generate 16.93% return on investment over 90 days.

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

China Construction Bank  vs.  Gotion High tech

China Construction Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 9 (%) 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 January 2025.

Gotion High tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gotion High tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Construction and Gotion High

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

The idea behind China Construction Bank and Gotion High tech 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.