Correlation Between China Building and Chongqing Shunbo

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

Diversification Opportunities for China Building and Chongqing Shunbo

0.75

Correlation Coefficient

China Building  Chongqing Shunbo

Poor diversification

The 3 months correlation between China and Chongqing is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding China Building Material and Chongqing Shunbo Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Shunbo Aluminum 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 Chongqing Shunbo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Shunbo Aluminum has no effect on the direction of China Building i.e., China Building and Chongqing Shunbo go up and down completely randomly.

Pair Corralation between China Building and Chongqing Shunbo

Assuming the 90 days trading horizon China Building is expected to generate 7.85 times less return on investment than Chongqing Shunbo. In addition to that, China Building is 1.3 times more volatile than Chongqing Shunbo Aluminum. It trades about 0.01 of its total potential returns per unit of risk. Chongqing Shunbo Aluminum is currently generating about 0.07 per unit of volatility. If you would invest  606.00  in Chongqing Shunbo Aluminum on October 10, 2024 and sell it today you would earn a total of  54.00  from holding Chongqing Shunbo Aluminum or generate 8.91% return on investment over 90 days.

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

China Building Material  vs.  Chongqing Shunbo Aluminum

China Building Material

Risk-Adjusted Performance

0 of 100

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.

Chongqing Shunbo Aluminum

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Shunbo Aluminum are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Shunbo may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Building and Chongqing Shunbo

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

The idea behind China Building Material and Chongqing Shunbo Aluminum 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.