Correlation Between China Construction and Fuda Alloy

Can any of the company-specific risk be diversified away by investing in both China Construction and Fuda Alloy 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 Fuda Alloy 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 Fuda Alloy Materials, you can compare the effects of market volatilities on China Construction and Fuda Alloy 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 Fuda Alloy. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Construction and Fuda Alloy.

Diversification Opportunities for China Construction and Fuda Alloy

0.74

Correlation Coefficient

China Construction  Fuda Alloy

Poor diversification

The 3 months correlation between China and Fuda is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and Fuda Alloy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuda Alloy Materials 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 Fuda Alloy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuda Alloy Materials has no effect on the direction of China Construction i.e., China Construction and Fuda Alloy go up and down completely randomly.

Pair Corralation between China Construction and Fuda Alloy

Assuming the 90 days trading horizon China Construction is expected to generate 2.3 times less return on investment than Fuda Alloy. But when comparing it to its historical volatility, China Construction Bank is 1.96 times less risky than Fuda Alloy. It trades about 0.19 of its potential returns per unit of risk. Fuda Alloy Materials is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  953.00  in Fuda Alloy Materials on September 12, 2024 and sell it today you would earn a total of  428.00  from holding Fuda Alloy Materials or generate 44.91% return on investment over 90 days.

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

China Construction Bank  vs.  Fuda Alloy Materials

China Construction Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Fuda Alloy Materials

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with China Construction and Fuda Alloy

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

The idea behind China Construction Bank and Fuda Alloy Materials 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.