Correlation Between Construction and CMC Investment

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

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

Diversification Opportunities for Construction and CMC Investment

-0.8

Correlation Coefficient

Construction  CMC Investment

Pay attention - limited upside

The 3 months correlation between Construction and CMC is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Construction And Investment and CMC Investment JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Investment JSC and 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 Construction And Investment are associated (or correlated) with CMC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Investment JSC has no effect on the direction of Construction i.e., Construction and CMC Investment go up and down completely randomly.

Pair Corralation between Construction and CMC Investment

Assuming the 90 days trading horizon Construction And Investment is expected to generate 0.32 times more return on investment than CMC Investment. However, Construction And Investment is 3.12 times less risky than CMC Investment. It trades about 0.11 of its potential returns per unit of risk. CMC Investment JSC is currently generating about -0.05 per unit of risk. If you would invest  3,660,000  in Construction And Investment on September 29, 2024 and sell it today you would earn a total of  390,000  from holding Construction And Investment or generate 10.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	60.0%
Values	Daily Returns

Construction And Investment  vs.  CMC Investment JSC

Construction And Inv

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Construction And Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CMC Investment JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMC Investment JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Construction and CMC Investment

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

The idea behind Construction And Investment and CMC Investment JSC 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.