Correlation Between China Construction and Business Warrior

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

Diversification Opportunities for China Construction and Business Warrior

0.16

Correlation Coefficient

China Construction  Business Warrior

Average diversification

The 3 months correlation between China and Business is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Business Warrior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business Warrior 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 Business Warrior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business Warrior has no effect on the direction of China Construction i.e., China Construction and Business Warrior go up and down completely randomly.

Pair Corralation between China Construction and Business Warrior

Assuming the 90 days horizon China Construction is expected to generate 5.08 times less return on investment than Business Warrior. But when comparing it to its historical volatility, China Construction Bank is 5.45 times less risky than Business Warrior. It trades about 0.06 of its potential returns per unit of risk. Business Warrior is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.56  in Business Warrior on December 4, 2024 and sell it today you would lose (0.53) from holding Business Warrior or give up 94.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	52.31%
Values	Daily Returns

China Construction Bank  vs.  Business Warrior

China Construction Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, China Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Business Warrior

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Business Warrior are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Business Warrior reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Construction and Business Warrior

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

The idea behind China Construction Bank and Business Warrior 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.