Correlation Between China Building and Gansu Yasheng

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

Diversification Opportunities for China Building and Gansu Yasheng

0.85

Correlation Coefficient

China Building  Gansu Yasheng

Very poor diversification

The 3 months correlation between China and Gansu is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding China Building Material and Gansu Yasheng Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Yasheng Industrial 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 Gansu Yasheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Yasheng Industrial has no effect on the direction of China Building i.e., China Building and Gansu Yasheng go up and down completely randomly.

Pair Corralation between China Building and Gansu Yasheng

Assuming the 90 days trading horizon China Building Material is expected to generate 1.27 times more return on investment than Gansu Yasheng. However, China Building is 1.27 times more volatile than Gansu Yasheng Industrial. It trades about 0.01 of its potential returns per unit of risk. Gansu Yasheng Industrial is currently generating about 0.0 per unit of risk. If you would invest  721.00  in China Building Material on October 4, 2024 and sell it today you would lose (9.00) from holding China Building Material or give up 1.25% of portfolio value over 90 days.

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

China Building Material  vs.  Gansu Yasheng Industrial

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.

Gansu Yasheng Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Building and Gansu Yasheng

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

The idea behind China Building Material and Gansu Yasheng Industrial 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.