Correlation Between China Construction and Healthcare

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

Diversification Opportunities for China Construction and Healthcare

-0.3

Correlation Coefficient

China Construction  Healthcare

Very good diversification

The 3 months correlation between China and Healthcare is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Healthcare Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Healthcare 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 Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Healthcare has no effect on the direction of China Construction i.e., China Construction and Healthcare go up and down completely randomly.

Pair Corralation between China Construction and Healthcare

Assuming the 90 days trading horizon China Construction Bank is expected to generate 0.55 times more return on investment than Healthcare. However, China Construction Bank is 1.81 times less risky than Healthcare. It trades about 0.05 of its potential returns per unit of risk. Healthcare Co is currently generating about -0.1 per unit of risk. If you would invest  819.00  in China Construction Bank on December 4, 2024 and sell it today you would earn a total of  26.00  from holding China Construction Bank or generate 3.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

China Construction Bank  vs.  Healthcare Co

China Construction Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 3 (%) 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.

Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Healthcare Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Construction and Healthcare

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

The idea behind China Construction Bank and Healthcare Co 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.