Correlation Between China Construction and Xizi Clean

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

Diversification Opportunities for China Construction and Xizi Clean

-0.61

Correlation Coefficient

China Construction  Xizi Clean

Excellent diversification

The 3 months correlation between China and Xizi is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Xizi Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xizi Clean Energy 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 Xizi Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xizi Clean Energy has no effect on the direction of China Construction i.e., China Construction and Xizi Clean go up and down completely randomly.

Pair Corralation between China Construction and Xizi Clean

Assuming the 90 days trading horizon China Construction Bank is expected to under-perform the Xizi Clean. But the stock apears to be less risky and, when comparing its historical volatility, China Construction Bank is 2.46 times less risky than Xizi Clean. The stock trades about -0.11 of its potential returns per unit of risk. The Xizi Clean Energy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,101  in Xizi Clean Energy on October 22, 2024 and sell it today you would earn a total of  141.00  from holding Xizi Clean Energy or generate 12.81% 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.  Xizi Clean Energy

China Construction Bank

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 3 (%) 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.

Xizi Clean Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xizi Clean Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xizi Clean may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Construction and Xizi Clean

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

The idea behind China Construction Bank and Xizi Clean Energy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.