Correlation Between BANK MANDIRI and China Construction

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

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

Diversification Opportunities for BANK MANDIRI and China Construction

-0.67

Correlation Coefficient

BANK MANDIRI  China Construction

Excellent diversification

The 3 months correlation between BANK and China is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding BANK MANDIRI and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction Bank and BANK MANDIRI 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 BANK MANDIRI are associated (or correlated) with China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of BANK MANDIRI i.e., BANK MANDIRI and China Construction go up and down completely randomly.

Pair Corralation between BANK MANDIRI and China Construction

Assuming the 90 days trading horizon BANK MANDIRI is expected to under-perform the China Construction. But the stock apears to be less risky and, when comparing its historical volatility, BANK MANDIRI is 1.08 times less risky than China Construction. The stock trades about -0.05 of its potential returns per unit of risk. The China Construction Bank is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  71.00  in China Construction Bank on September 13, 2024 and sell it today you would earn a total of  5.00  from holding China Construction Bank or generate 7.04% return on investment over 90 days.

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

BANK MANDIRI  vs.  China Construction Bank

BANK MANDIRI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK MANDIRI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

China Construction Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Construction Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, China Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BANK MANDIRI and China Construction

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

The idea behind BANK MANDIRI and China Construction 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.