Correlation Between Heidelberg Materials and China Reinsurance

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

By analyzing existing cross correlation between Heidelberg Materials AG and China Reinsurance Corp, you can compare the effects of market volatilities on Heidelberg Materials and China Reinsurance 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 Heidelberg Materials with a short position of China Reinsurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heidelberg Materials and China Reinsurance.

Diversification Opportunities for Heidelberg Materials and China Reinsurance

0.76

Correlation Coefficient

Heidelberg Materials  China Reinsurance

Poor diversification

The 3 months correlation between Heidelberg and China is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Heidelberg Materials AG and China Reinsurance Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reinsurance Corp and Heidelberg Materials 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 Heidelberg Materials AG are associated (or correlated) with China Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reinsurance Corp has no effect on the direction of Heidelberg Materials i.e., Heidelberg Materials and China Reinsurance go up and down completely randomly.

Pair Corralation between Heidelberg Materials and China Reinsurance

Assuming the 90 days horizon Heidelberg Materials AG is expected to generate 0.7 times more return on investment than China Reinsurance. However, Heidelberg Materials AG is 1.44 times less risky than China Reinsurance. It trades about 0.17 of its potential returns per unit of risk. China Reinsurance Corp is currently generating about 0.1 per unit of risk. If you would invest  12,045  in Heidelberg Materials AG on December 22, 2024 and sell it today you would earn a total of  5,750  from holding Heidelberg Materials AG or generate 47.74% return on investment over 90 days.

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

Heidelberg Materials AG  vs.  China Reinsurance Corp

Heidelberg Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heidelberg Materials AG are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Heidelberg Materials reported solid returns over the last few months and may actually be approaching a breakup point.

China Reinsurance Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Reinsurance Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, China Reinsurance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heidelberg Materials and China Reinsurance

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

The idea behind Heidelberg Materials AG and China Reinsurance Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.