Correlation Between China Construction and Ocean Biomedical

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

Diversification Opportunities for China Construction and Ocean Biomedical

-0.33

Correlation Coefficient

China Construction  Ocean Biomedical

Very good diversification

The 3 months correlation between China and Ocean is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Ocean Biomedical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Biomedical 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 Ocean Biomedical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Biomedical has no effect on the direction of China Construction i.e., China Construction and Ocean Biomedical go up and down completely randomly.

Pair Corralation between China Construction and Ocean Biomedical

Assuming the 90 days horizon China Construction Bank is expected to under-perform the Ocean Biomedical. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Construction Bank is 3.12 times less risky than Ocean Biomedical. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Ocean Biomedical is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Ocean Biomedical on October 23, 2024 and sell it today you would earn a total of  0.01  from holding Ocean Biomedical or generate 0.33% return on investment over 90 days.

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

China Construction Bank  vs.  Ocean Biomedical

China Construction Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, China Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ocean Biomedical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ocean Biomedical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Ocean Biomedical is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Construction and Ocean Biomedical

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

The idea behind China Construction Bank and Ocean Biomedical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.