Correlation Between China Construction and Science Environmental

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

Diversification Opportunities for China Construction and Science Environmental

0.06

Correlation Coefficient

China Construction  Science Environmental

Significant diversification

The 3 months correlation between China and Science is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Science Environmental Protecti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Science Environmental 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 Science Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Science Environmental has no effect on the direction of China Construction i.e., China Construction and Science Environmental go up and down completely randomly.

Pair Corralation between China Construction and Science Environmental

Assuming the 90 days trading horizon China Construction Bank is expected to under-perform the Science Environmental. But the stock apears to be less risky and, when comparing its historical volatility, China Construction Bank is 1.83 times less risky than Science Environmental. The stock trades about -0.02 of its potential returns per unit of risk. The Science Environmental Protection is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,806  in Science Environmental Protection on December 26, 2024 and sell it today you would earn a total of  581.00  from holding Science Environmental Protection or generate 20.71% 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.  Science Environmental Protecti

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.

Science Environmental

Risk-Adjusted Performance

Good

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

Pair Trading with China Construction and Science Environmental

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

The idea behind China Construction Bank and Science Environmental Protection 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 Stocks Directory module to find actively traded stocks across global markets.