Correlation Between Svenska Handelsbanken and China Construction

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

By analyzing existing cross correlation between Svenska Handelsbanken AB and China Construction Bank, you can compare the effects of market volatilities on Svenska Handelsbanken and China Construction 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 Svenska Handelsbanken with a short position of China Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Svenska Handelsbanken and China Construction.

Diversification Opportunities for Svenska Handelsbanken and China Construction

0.1

Correlation Coefficient

Svenska Handelsbanken  China Construction

Average diversification

The 3 months correlation between Svenska and China is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Handelsbanken AB and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank and Svenska Handelsbanken 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 Svenska Handelsbanken AB are associated (or correlated) with China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Svenska Handelsbanken i.e., Svenska Handelsbanken and China Construction go up and down completely randomly.

Pair Corralation between Svenska Handelsbanken and China Construction

Assuming the 90 days horizon Svenska Handelsbanken AB is expected to generate 0.39 times more return on investment than China Construction. However, Svenska Handelsbanken AB is 2.54 times less risky than China Construction. It trades about 0.07 of its potential returns per unit of risk. China Construction Bank is currently generating about 0.01 per unit of risk. If you would invest  1,034  in Svenska Handelsbanken AB on October 12, 2024 and sell it today you would earn a total of  21.00  from holding Svenska Handelsbanken AB or generate 2.03% return on investment over 90 days.

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

Svenska Handelsbanken AB  vs.  China Construction Bank

Svenska Handelsbanken

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Svenska Handelsbanken AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Svenska Handelsbanken may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Construction Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Construction Bank has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Svenska Handelsbanken and China Construction

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

The idea behind Svenska Handelsbanken AB and China Construction Bank 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.