Correlation Between China Construction and Yindu Kitchen

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

Diversification Opportunities for China Construction and Yindu Kitchen

0.04

Correlation Coefficient

China Construction  Yindu Kitchen

Significant diversification

The 3 months correlation between China and Yindu is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Yindu Kitchen Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yindu Kitchen Equipment 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 Yindu Kitchen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yindu Kitchen Equipment has no effect on the direction of China Construction i.e., China Construction and Yindu Kitchen go up and down completely randomly.

Pair Corralation between China Construction and Yindu Kitchen

Assuming the 90 days trading horizon China Construction Bank is expected to under-perform the Yindu Kitchen. But the stock apears to be less risky and, when comparing its historical volatility, China Construction Bank is 1.78 times less risky than Yindu Kitchen. The stock trades about -0.03 of its potential returns per unit of risk. The Yindu Kitchen Equipment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,435  in Yindu Kitchen Equipment on December 24, 2024 and sell it today you would earn a total of  213.00  from holding Yindu Kitchen Equipment or generate 8.75% 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.  Yindu Kitchen Equipment

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.

Yindu Kitchen Equipment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yindu Kitchen Equipment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yindu Kitchen may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China Construction and Yindu Kitchen

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

The idea behind China Construction Bank and Yindu Kitchen Equipment 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.