Correlation Between China Construction and Bank of Qingdao

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

Diversification Opportunities for China Construction and Bank of Qingdao

0.38

Correlation Coefficient

China Construction  Bank of Qingdao

Weak diversification

The 3 months correlation between China and Bank is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Bank of Qingdao in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Qingdao 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 Bank of Qingdao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Qingdao has no effect on the direction of China Construction i.e., China Construction and Bank of Qingdao go up and down completely randomly.

Pair Corralation between China Construction and Bank of Qingdao

Assuming the 90 days trading horizon China Construction Bank is expected to generate 0.93 times more return on investment than Bank of Qingdao. However, China Construction Bank is 1.07 times less risky than Bank of Qingdao. It trades about 0.08 of its potential returns per unit of risk. Bank of Qingdao is currently generating about 0.04 per unit of risk. If you would invest  529.00  in China Construction Bank on October 13, 2024 and sell it today you would earn a total of  316.00  from holding China Construction Bank or generate 59.74% return on investment over 90 days.

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

China Construction Bank  vs.  Bank of Qingdao

China Construction Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Construction Bank has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Bank of Qingdao

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Qingdao are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Qingdao is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Construction and Bank of Qingdao

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

The idea behind China Construction Bank and Bank of Qingdao 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.