Correlation Between Constellium and China Hongqiao

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

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

Diversification Opportunities for Constellium and China Hongqiao

0.43

Correlation Coefficient

Constellium  China Hongqiao

Very weak diversification

The 3 months correlation between Constellium and China is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Constellium Nv and China Hongqiao Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Hongqiao Group and Constellium 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 Constellium Nv are associated (or correlated) with China Hongqiao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Hongqiao Group has no effect on the direction of Constellium i.e., Constellium and China Hongqiao go up and down completely randomly.

Pair Corralation between Constellium and China Hongqiao

Given the investment horizon of 90 days Constellium is expected to generate 3.17 times less return on investment than China Hongqiao. But when comparing it to its historical volatility, Constellium Nv is 1.15 times less risky than China Hongqiao. It trades about 0.03 of its potential returns per unit of risk. China Hongqiao Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  166.00  in China Hongqiao Group on December 30, 2024 and sell it today you would earn a total of  30.00  from holding China Hongqiao Group or generate 18.07% return on investment over 90 days.

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

Constellium Nv  vs.  China Hongqiao Group

Constellium Nv

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Constellium Nv are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Constellium may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Hongqiao Group

Risk-Adjusted Performance

Modest

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

Pair Trading with Constellium and China Hongqiao

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

The idea behind Constellium Nv and China Hongqiao Group 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.