Correlation Between China Construction and ABN AMRO

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

Diversification Opportunities for China Construction and ABN AMRO

-0.29

Correlation Coefficient

China Construction  ABN AMRO

Very good diversification

The 3 months correlation between China and ABN is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding China Construction Bank and ABN AMRO Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABN AMRO Bank 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 ABN AMRO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABN AMRO Bank has no effect on the direction of China Construction i.e., China Construction and ABN AMRO go up and down completely randomly.

Pair Corralation between China Construction and ABN AMRO

Assuming the 90 days horizon China Construction Bank is expected to generate 4.75 times more return on investment than ABN AMRO. However, China Construction is 4.75 times more volatile than ABN AMRO Bank. It trades about 0.01 of its potential returns per unit of risk. ABN AMRO Bank is currently generating about -0.06 per unit of risk. If you would invest  80.00  in China Construction Bank on September 13, 2024 and sell it today you would lose (2.00) from holding China Construction Bank or give up 2.5% of portfolio value over 90 days.

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

China Construction Bank  vs.  ABN AMRO Bank

China Construction Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, China Construction reported solid returns over the last few months and may actually be approaching a breakup point.

ABN AMRO Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABN AMRO Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Construction and ABN AMRO

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

The idea behind China Construction Bank and ABN AMRO 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.