Correlation Between China Infrastructure and THC Therapeutics

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

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

Diversification Opportunities for China Infrastructure and THC Therapeutics

0.22

Correlation Coefficient

China Infrastructure  THC Therapeutics

Modest diversification

The 3 months correlation between China and THC is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding China Infrastructure Construct and THC Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THC Therapeutics and China Infrastructure 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 Infrastructure Construction are associated (or correlated) with THC Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THC Therapeutics has no effect on the direction of China Infrastructure i.e., China Infrastructure and THC Therapeutics go up and down completely randomly.

Pair Corralation between China Infrastructure and THC Therapeutics

If you would invest  0.30  in THC Therapeutics on September 4, 2024 and sell it today you would lose (0.24) from holding THC Therapeutics or give up 80.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.54%
Values	Daily Returns

China Infrastructure Construct  vs.  THC Therapeutics

China Infrastructure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Infrastructure Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, China Infrastructure is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

THC Therapeutics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in THC Therapeutics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, THC Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Infrastructure and THC Therapeutics

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

The idea behind China Infrastructure Construction and THC Therapeutics 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.