Correlation Between China Construction and Quaker Chemical

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

Diversification Opportunities for China Construction and Quaker Chemical

-0.55

Correlation Coefficient

China Construction  Quaker Chemical

Excellent diversification

The 3 months correlation between China and Quaker is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Quaker Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quaker Chemical 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 Quaker Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quaker Chemical has no effect on the direction of China Construction i.e., China Construction and Quaker Chemical go up and down completely randomly.

Pair Corralation between China Construction and Quaker Chemical

Assuming the 90 days horizon China Construction Bank is expected to generate 2.33 times more return on investment than Quaker Chemical. However, China Construction is 2.33 times more volatile than Quaker Chemical. It trades about 0.16 of its potential returns per unit of risk. Quaker Chemical is currently generating about -0.12 per unit of risk. If you would invest  56.00  in China Construction Bank on December 20, 2024 and sell it today you would earn a total of  25.00  from holding China Construction Bank or generate 44.64% return on investment over 90 days.

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

China Construction Bank  vs.  Quaker Chemical

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 12 (%) 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.

Quaker Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Construction and Quaker Chemical

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

The idea behind China Construction Bank and Quaker Chemical 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.