Correlation Between China Construction and Suzhou Longway

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

Diversification Opportunities for China Construction and Suzhou Longway

0.1

Correlation Coefficient

China Construction  Suzhou Longway

Average diversification

The 3 months correlation between China and Suzhou is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Suzhou Longway Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Longway Electronic 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 Suzhou Longway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Longway Electronic has no effect on the direction of China Construction i.e., China Construction and Suzhou Longway go up and down completely randomly.

Pair Corralation between China Construction and Suzhou Longway

Assuming the 90 days trading horizon China Construction Bank is expected to under-perform the Suzhou Longway. But the stock apears to be less risky and, when comparing its historical volatility, China Construction Bank is 5.14 times less risky than Suzhou Longway. The stock trades about -0.04 of its potential returns per unit of risk. The Suzhou Longway Electronic is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,760  in Suzhou Longway Electronic on December 25, 2024 and sell it today you would earn a total of  824.00  from holding Suzhou Longway Electronic or generate 21.91% 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.  Suzhou Longway Electronic

China Construction Bank

Risk-Adjusted Performance

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.

Suzhou Longway Electronic

Risk-Adjusted Performance

Modest

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

Pair Trading with China Construction and Suzhou Longway

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

The idea behind China Construction Bank and Suzhou Longway Electronic 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.