Correlation Between China Construction and Beijing Enlight

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

Diversification Opportunities for China Construction and Beijing Enlight

0.41

Correlation Coefficient

China Construction  Beijing Enlight

Very weak diversification

The 3 months correlation between China and Beijing is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Beijing Enlight Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Enlight Media 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 Beijing Enlight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Enlight Media has no effect on the direction of China Construction i.e., China Construction and Beijing Enlight go up and down completely randomly.

Pair Corralation between China Construction and Beijing Enlight

Assuming the 90 days trading horizon China Construction Bank is expected to under-perform the Beijing Enlight. But the stock apears to be less risky and, when comparing its historical volatility, China Construction Bank is 1.65 times less risky than Beijing Enlight. The stock trades about -0.13 of its potential returns per unit of risk. The Beijing Enlight Media is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  917.00  in Beijing Enlight Media on October 23, 2024 and sell it today you would earn a total of  21.00  from holding Beijing Enlight Media or generate 2.29% return on investment over 90 days.

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

China Construction Bank  vs.  Beijing Enlight Media

China Construction Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 2 (%) 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.

Beijing Enlight Media

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Enlight Media are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Enlight sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Construction and Beijing Enlight

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

The idea behind China Construction Bank and Beijing Enlight Media 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.