Correlation Between China Resources and CRH PLC

Can any of the company-specific risk be diversified away by investing in both China Resources and CRH PLC 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 Resources and CRH PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Resources Cement and CRH PLC ADR, you can compare the effects of market volatilities on China Resources and CRH PLC 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 Resources with a short position of CRH PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Resources and CRH PLC.

Diversification Opportunities for China Resources and CRH PLC

0.18

Correlation Coefficient

China Resources  CRH PLC

Average diversification

The 3 months correlation between China and CRH is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Cement and CRH PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRH PLC ADR and China Resources 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 Resources Cement are associated (or correlated) with CRH PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRH PLC ADR has no effect on the direction of China Resources i.e., China Resources and CRH PLC go up and down completely randomly.

Pair Corralation between China Resources and CRH PLC

Assuming the 90 days horizon China Resources Cement is expected to generate 0.29 times more return on investment than CRH PLC. However, China Resources Cement is 3.39 times less risky than CRH PLC. It trades about 0.22 of its potential returns per unit of risk. CRH PLC ADR is currently generating about -0.07 per unit of risk. If you would invest  585.00  in China Resources Cement on December 4, 2024 and sell it today you would earn a total of  20.00  from holding China Resources Cement or generate 3.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

China Resources Cement  vs.  CRH PLC ADR

China Resources Cement

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Resources Cement has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

CRH PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days CRH PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, CRH PLC is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with China Resources and CRH PLC

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

The idea behind China Resources Cement and CRH PLC ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.