Correlation Between China Express and Zhejiang Construction

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

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

Diversification Opportunities for China Express and Zhejiang Construction

0.81

Correlation Coefficient

China Express  Zhejiang Construction

Very poor diversification

The 3 months correlation between China and Zhejiang is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding China Express Airlines and Zhejiang Construction Investme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Construction and China Express 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 China Express Airlines are associated (or correlated) with Zhejiang Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Construction has no effect on the direction of China Express i.e., China Express and Zhejiang Construction go up and down completely randomly.

Pair Corralation between China Express and Zhejiang Construction

Assuming the 90 days trading horizon China Express Airlines is expected to generate 0.79 times more return on investment than Zhejiang Construction. However, China Express Airlines is 1.27 times less risky than Zhejiang Construction. It trades about 0.27 of its potential returns per unit of risk. Zhejiang Construction Investment is currently generating about 0.16 per unit of risk. If you would invest  518.00  in China Express Airlines on September 15, 2024 and sell it today you would earn a total of  312.00  from holding China Express Airlines or generate 60.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

China Express Airlines  vs.  Zhejiang Construction Investme

China Express Airlines

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Express Airlines are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Express sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Construction

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Construction Investment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Express and Zhejiang Construction

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

The idea behind China Express Airlines and Zhejiang Construction Investment 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.