Correlation Between China Hongqiao and Constellium

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

By analyzing existing cross correlation between China Hongqiao Group and Constellium Nv, you can compare the effects of market volatilities on China Hongqiao and Constellium 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 Hongqiao with a short position of Constellium. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Hongqiao and Constellium.

Diversification Opportunities for China Hongqiao and Constellium

0.27

Correlation Coefficient

China Hongqiao  Constellium

Modest diversification

The 3 months correlation between China and Constellium is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding China Hongqiao Group and Constellium Nv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellium Nv and China Hongqiao 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 Hongqiao Group are associated (or correlated) with Constellium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellium Nv has no effect on the direction of China Hongqiao i.e., China Hongqiao and Constellium go up and down completely randomly.

Pair Corralation between China Hongqiao and Constellium

Assuming the 90 days horizon China Hongqiao Group is expected to generate 0.17 times more return on investment than Constellium. However, China Hongqiao Group is 6.0 times less risky than Constellium. It trades about -0.13 of its potential returns per unit of risk. Constellium Nv is currently generating about -0.03 per unit of risk. If you would invest  166.00  in China Hongqiao Group on November 29, 2024 and sell it today you would lose (6.00) from holding China Hongqiao Group or give up 3.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

China Hongqiao Group  vs.  Constellium Nv

China Hongqiao Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Hongqiao Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Hongqiao is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Constellium Nv

Risk-Adjusted Performance

Very Weak

Over the last 90 days Constellium Nv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Constellium is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with China Hongqiao and Constellium

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

The idea behind China Hongqiao Group and Constellium Nv 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.