Correlation Between China Building and Jiangnan Mould

Can any of the company-specific risk be diversified away by investing in both China Building and Jiangnan Mould 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 Building and Jiangnan Mould into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Building Material and Jiangnan Mould Plastic, you can compare the effects of market volatilities on China Building and Jiangnan Mould 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 Building with a short position of Jiangnan Mould. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Building and Jiangnan Mould.

Diversification Opportunities for China Building and Jiangnan Mould

0.31

Correlation Coefficient

China Building  Jiangnan Mould

Weak diversification

The 3 months correlation between China and Jiangnan is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Building Material and Jiangnan Mould Plastic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangnan Mould Plastic and China Building 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 Building Material are associated (or correlated) with Jiangnan Mould. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangnan Mould Plastic has no effect on the direction of China Building i.e., China Building and Jiangnan Mould go up and down completely randomly.

Pair Corralation between China Building and Jiangnan Mould

Assuming the 90 days trading horizon China Building Material is expected to under-perform the Jiangnan Mould. But the stock apears to be less risky and, when comparing its historical volatility, China Building Material is 1.55 times less risky than Jiangnan Mould. The stock trades about -0.05 of its potential returns per unit of risk. The Jiangnan Mould Plastic is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  700.00  in Jiangnan Mould Plastic on December 25, 2024 and sell it today you would earn a total of  120.00  from holding Jiangnan Mould Plastic or generate 17.14% return on investment over 90 days.

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

China Building Material  vs.  Jiangnan Mould Plastic

China Building Material

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Building Material has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Building is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jiangnan Mould Plastic

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangnan Mould Plastic are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangnan Mould sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Building and Jiangnan Mould

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

The idea behind China Building Material and Jiangnan Mould Plastic 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.