Correlation Between China Construction and Huaxia Fund

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

Diversification Opportunities for China Construction and Huaxia Fund

-0.51

Correlation Coefficient

China Construction  Huaxia Fund

Excellent diversification

The 3 months correlation between China and Huaxia is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Huaxia Fund Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaxia Fund Management 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 Huaxia Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaxia Fund Management has no effect on the direction of China Construction i.e., China Construction and Huaxia Fund go up and down completely randomly.

Pair Corralation between China Construction and Huaxia Fund

Assuming the 90 days trading horizon China Construction Bank is expected to generate 1.58 times more return on investment than Huaxia Fund. However, China Construction is 1.58 times more volatile than Huaxia Fund Management. It trades about 0.16 of its potential returns per unit of risk. Huaxia Fund Management is currently generating about 0.07 per unit of risk. If you would invest  712.00  in China Construction Bank on September 13, 2024 and sell it today you would earn a total of  109.00  from holding China Construction Bank or generate 15.31% return on investment over 90 days.

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

China Construction Bank  vs.  Huaxia Fund Management

China Construction Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Huaxia Fund Management

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Huaxia Fund Management are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Huaxia Fund 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 Huaxia Fund

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

The idea behind China Construction Bank and Huaxia Fund Management 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 Transaction History module to view history of all your transactions and understand their impact on performance.