Correlation Between Cotec Construction and CMC Investment

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

By analyzing existing cross correlation between Cotec Construction JSC and CMC Investment JSC, you can compare the effects of market volatilities on Cotec Construction and CMC Investment 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 Cotec Construction with a short position of CMC Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cotec Construction and CMC Investment.

Diversification Opportunities for Cotec Construction and CMC Investment

0.14

Correlation Coefficient

Cotec Construction  CMC Investment

Average diversification

The 3 months correlation between Cotec and CMC is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Cotec Construction JSC and CMC Investment JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Investment JSC and Cotec 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 Cotec Construction JSC are associated (or correlated) with CMC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Investment JSC has no effect on the direction of Cotec Construction i.e., Cotec Construction and CMC Investment go up and down completely randomly.

Pair Corralation between Cotec Construction and CMC Investment

Assuming the 90 days trading horizon Cotec Construction is expected to generate 1.3 times less return on investment than CMC Investment. But when comparing it to its historical volatility, Cotec Construction JSC is 2.63 times less risky than CMC Investment. It trades about 0.19 of its potential returns per unit of risk. CMC Investment JSC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  580,000  in CMC Investment JSC on December 19, 2024 and sell it today you would earn a total of  120,000  from holding CMC Investment JSC or generate 20.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	81.03%
Values	Daily Returns

Cotec Construction JSC  vs.  CMC Investment JSC

Cotec Construction JSC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cotec Construction JSC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cotec Construction displayed solid returns over the last few months and may actually be approaching a breakup point.

CMC Investment JSC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CMC Investment JSC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, CMC Investment displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cotec Construction and CMC Investment

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

The idea behind Cotec Construction JSC and CMC Investment JSC 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.