Correlation Between Hongrun Construction and China Marine

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

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

Diversification Opportunities for Hongrun Construction and China Marine

0.39

Correlation Coefficient

Hongrun Construction  China Marine

Weak diversification

The 3 months correlation between Hongrun and China is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Hongrun Construction Group and China Marine Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Marine Information and Hongrun 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 Hongrun Construction Group are associated (or correlated) with China Marine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Marine Information has no effect on the direction of Hongrun Construction i.e., Hongrun Construction and China Marine go up and down completely randomly.

Pair Corralation between Hongrun Construction and China Marine

Assuming the 90 days trading horizon Hongrun Construction Group is expected to generate 0.83 times more return on investment than China Marine. However, Hongrun Construction Group is 1.21 times less risky than China Marine. It trades about 0.15 of its potential returns per unit of risk. China Marine Information is currently generating about 0.08 per unit of risk. If you would invest  396.00  in Hongrun Construction Group on September 30, 2024 and sell it today you would earn a total of  111.00  from holding Hongrun Construction Group or generate 28.03% return on investment over 90 days.

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

Hongrun Construction Group  vs.  China Marine Information

Hongrun Construction

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hongrun Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

China Marine Information

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Hongrun Construction and China Marine

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

The idea behind Hongrun Construction Group and China Marine Information 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.