Correlation Between China Construction and Hefei Metalforming

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

Diversification Opportunities for China Construction and Hefei Metalforming

-0.14

Correlation Coefficient

China Construction  Hefei Metalforming

Good diversification

The 3 months correlation between China and Hefei is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Hefei Metalforming Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hefei Metalforming Mach 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 Hefei Metalforming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hefei Metalforming Mach has no effect on the direction of China Construction i.e., China Construction and Hefei Metalforming go up and down completely randomly.

Pair Corralation between China Construction and Hefei Metalforming

Assuming the 90 days trading horizon China Construction Bank is expected to generate 0.42 times more return on investment than Hefei Metalforming. However, China Construction Bank is 2.36 times less risky than Hefei Metalforming. It trades about 0.21 of its potential returns per unit of risk. Hefei Metalforming Mach is currently generating about -0.37 per unit of risk. If you would invest  819.00  in China Construction Bank on October 5, 2024 and sell it today you would earn a total of  40.00  from holding China Construction Bank or generate 4.88% return on investment over 90 days.

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

China Construction Bank  vs.  Hefei Metalforming Mach

China Construction Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hefei Metalforming Mach

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hefei Metalforming Mach has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hefei Metalforming 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 Hefei Metalforming

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

The idea behind China Construction Bank and Hefei Metalforming Mach 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.