Correlation Between China Metal and Kedge Construction

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

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

Diversification Opportunities for China Metal and Kedge Construction

-0.21

Correlation Coefficient

China Metal  Kedge Construction

Very good diversification

The 3 months correlation between China and Kedge is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and Kedge Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kedge Construction and China Metal 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 Metal Products are associated (or correlated) with Kedge Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kedge Construction has no effect on the direction of China Metal i.e., China Metal and Kedge Construction go up and down completely randomly.

Pair Corralation between China Metal and Kedge Construction

Assuming the 90 days trading horizon China Metal is expected to generate 2.24 times less return on investment than Kedge Construction. But when comparing it to its historical volatility, China Metal Products is 1.08 times less risky than Kedge Construction. It trades about 0.03 of its potential returns per unit of risk. Kedge Construction Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,772  in Kedge Construction Co on September 13, 2024 and sell it today you would earn a total of  2,488  from holding Kedge Construction Co or generate 52.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

China Metal Products  vs.  Kedge Construction Co

China Metal Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Metal Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Kedge Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kedge Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Kedge Construction is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Metal and Kedge Construction

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

The idea behind China Metal Products and Kedge Construction Co 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .