Correlation Between China Construction and INSURANCE AUST

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

Diversification Opportunities for China Construction and INSURANCE AUST

-0.14

Correlation Coefficient

China Construction  INSURANCE AUST

Good diversification

The 3 months correlation between China and INSURANCE is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and INSURANCE AUST GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INSURANCE AUST GRP 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 INSURANCE AUST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INSURANCE AUST GRP has no effect on the direction of China Construction i.e., China Construction and INSURANCE AUST go up and down completely randomly.

Pair Corralation between China Construction and INSURANCE AUST

Assuming the 90 days horizon China Construction Bank is expected to generate 2.02 times more return on investment than INSURANCE AUST. However, China Construction is 2.02 times more volatile than INSURANCE AUST GRP. It trades about 0.14 of its potential returns per unit of risk. INSURANCE AUST GRP is currently generating about -0.06 per unit of risk. If you would invest  57.00  in China Construction Bank on December 29, 2024 and sell it today you would earn a total of  24.00  from holding China Construction Bank or generate 42.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

China Construction Bank  vs.  INSURANCE AUST GRP

China Construction Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 11 (%) 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.

INSURANCE AUST GRP

Risk-Adjusted Performance

Very Weak

Over the last 90 days INSURANCE AUST GRP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with China Construction and INSURANCE AUST

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

The idea behind China Construction Bank and INSURANCE AUST GRP 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.