Correlation Between Panda Financial and China Construction

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

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

Diversification Opportunities for Panda Financial and China Construction

0.02

Correlation Coefficient

Panda Financial  China Construction

Significant diversification

The 3 months correlation between Panda and China is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Panda Financial Holding 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 Panda Financial 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 Panda Financial Holding 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 Panda Financial i.e., Panda Financial and China Construction go up and down completely randomly.

Pair Corralation between Panda Financial and China Construction

Assuming the 90 days trading horizon Panda Financial Holding is expected to generate 1.87 times more return on investment than China Construction. However, Panda Financial is 1.87 times more volatile than China Construction Bank. It trades about 0.22 of its potential returns per unit of risk. China Construction Bank is currently generating about 0.1 per unit of risk. If you would invest  1,045  in Panda Financial Holding on September 3, 2024 and sell it today you would earn a total of  472.00  from holding Panda Financial Holding or generate 45.17% return on investment over 90 days.

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

Panda Financial Holding  vs.  China Construction Bank

Panda Financial Holding

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Panda Financial Holding are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Panda Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

China Construction Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Panda Financial and China Construction

The main advantage of trading using opposite Panda Financial and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Panda Financial 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 Panda Financial Holding 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.