Correlation Between China Construction and First Capital

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

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

Diversification Opportunities for China Construction and First Capital

0.56

Correlation Coefficient

China Construction  First Capital

Very weak diversification

The 3 months correlation between China and First is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and First Capital Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital Securities and China 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 China Construction Bank are associated (or correlated) with First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital Securities has no effect on the direction of China Construction i.e., China Construction and First Capital go up and down completely randomly.

Pair Corralation between China Construction and First Capital

Assuming the 90 days trading horizon China Construction is expected to generate 5.19 times less return on investment than First Capital. But when comparing it to its historical volatility, China Construction Bank is 2.98 times less risky than First Capital. It trades about 0.12 of its potential returns per unit of risk. First Capital Securities is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  553.00  in First Capital Securities on September 24, 2024 and sell it today you would earn a total of  349.00  from holding First Capital Securities or generate 63.11% return on investment over 90 days.

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

China Construction Bank  vs.  First Capital Securities

China Construction Bank

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 9 (%) 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.

First Capital Securities

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital Securities are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, First Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Construction and First Capital

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

The idea behind China Construction Bank and First Capital Securities 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.