Correlation Between China National and Holcim

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

Diversification Opportunities for China National and Holcim

0.37

Correlation Coefficient

China National  Holcim

Weak diversification

The 3 months correlation between China and Holcim is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding China National Building and Holcim in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holcim 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 Holcim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holcim has no effect on the direction of China National i.e., China National and Holcim go up and down completely randomly.

Pair Corralation between China National and Holcim

Assuming the 90 days horizon China National Building is expected to generate 4.57 times more return on investment than Holcim. However, China National is 4.57 times more volatile than Holcim. It trades about 0.19 of its potential returns per unit of risk. Holcim is currently generating about 0.11 per unit of risk. If you would invest  1,315  in China National Building on September 13, 2024 and sell it today you would earn a total of  1,064  from holding China National Building or generate 80.91% return on investment over 90 days.

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

China National Building  vs.  Holcim

China National Building

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China National Building are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent primary indicators, China National showed solid returns over the last few months and may actually be approaching a breakup point.

Holcim

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Holcim are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent essential indicators, Holcim may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China National and Holcim

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

The idea behind China National Building and Holcim 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.