Correlation Between James Hardie and China Resources

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

By analyzing existing cross correlation between James Hardie Industries and China Resources Cement, you can compare the effects of market volatilities on James Hardie and China Resources 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 James Hardie with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of James Hardie and China Resources.

Diversification Opportunities for James Hardie and China Resources

-0.31

Correlation Coefficient

James Hardie  China Resources

Very good diversification

The 3 months correlation between James and China is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding James Hardie Industries and China Resources Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Cement and James Hardie 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 James Hardie Industries are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Cement has no effect on the direction of James Hardie i.e., James Hardie and China Resources go up and down completely randomly.

Pair Corralation between James Hardie and China Resources

Considering the 90-day investment horizon James Hardie Industries is expected to under-perform the China Resources. But the stock apears to be less risky and, when comparing its historical volatility, James Hardie Industries is 1.9 times less risky than China Resources. The stock trades about -0.02 of its potential returns per unit of risk. The China Resources Cement is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  555.00  in China Resources Cement on September 14, 2024 and sell it today you would earn a total of  149.00  from holding China Resources Cement or generate 26.85% return on investment over 90 days.

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

James Hardie Industries  vs.  China Resources Cement

James Hardie Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days James Hardie Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, James Hardie is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Resources Cement

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Cement are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, China Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with James Hardie and China Resources

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

The idea behind James Hardie Industries and China Resources Cement 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.