Correlation Between China Construction and FOSTOURGRP

Can any of the company-specific risk be diversified away by investing in both China Construction and FOSTOURGRP 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 FOSTOURGRP 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 FOSTOURGRP EO 0001, you can compare the effects of market volatilities on China Construction and FOSTOURGRP 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 FOSTOURGRP. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and FOSTOURGRP.

Diversification Opportunities for China Construction and FOSTOURGRP

0.65

Correlation Coefficient

China Construction  FOSTOURGRP

Poor diversification

The 3 months correlation between China and FOSTOURGRP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and FOSTOURGRP EO 0001 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FOSTOURGRP EO 0001 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 FOSTOURGRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FOSTOURGRP EO 0001 has no effect on the direction of China Construction i.e., China Construction and FOSTOURGRP go up and down completely randomly.

Pair Corralation between China Construction and FOSTOURGRP

Assuming the 90 days horizon China Construction is expected to generate 19.06 times less return on investment than FOSTOURGRP. But when comparing it to its historical volatility, China Construction Bank is 11.11 times less risky than FOSTOURGRP. It trades about 0.15 of its potential returns per unit of risk. FOSTOURGRP EO 0001 is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  40.00  in FOSTOURGRP EO 0001 on September 23, 2024 and sell it today you would earn a total of  50.00  from holding FOSTOURGRP EO 0001 or generate 125.0% return on investment over 90 days.

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

China Construction Bank  vs.  FOSTOURGRP EO 0001

China Construction Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Construction reported solid returns over the last few months and may actually be approaching a breakup point.

FOSTOURGRP EO 0001

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FOSTOURGRP EO 0001 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FOSTOURGRP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Construction and FOSTOURGRP

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

The idea behind China Construction Bank and FOSTOURGRP EO 0001 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.