Correlation Between China National and CRH PLC

Can any of the company-specific risk be diversified away by investing in both China National 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 National 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 National Building and CRH PLC ADR, you can compare the effects of market volatilities on China National 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 National with a short position of CRH PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of China National and CRH PLC.

Diversification Opportunities for China National and CRH PLC

0.4

Correlation Coefficient

China National  CRH PLC

Very weak diversification

The 3 months correlation between China and CRH is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding China National Building 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 National 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 National Building 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 National i.e., China National and CRH PLC go up and down completely randomly.

Pair Corralation between China National and CRH PLC

Assuming the 90 days horizon China National Building is expected to generate 2.23 times more return on investment than CRH PLC. However, China National is 2.23 times more volatile than CRH PLC ADR. It trades about 0.1 of its potential returns per unit of risk. CRH PLC ADR is currently generating about -0.03 per unit of risk. If you would invest  2,139  in China National Building on December 4, 2024 and sell it today you would earn a total of  403.00  from holding China National Building or generate 18.84% return on investment over 90 days.

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

China National Building  vs.  CRH PLC ADR

China National Building

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China National Building are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, China National showed solid returns over the last few months and may actually be approaching a breakup point.

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 National and CRH PLC

The main advantage of trading using opposite China National and CRH PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China National 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 National Building 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.