Correlation Between Lafargeholcim and China Resources

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

By analyzing existing cross correlation between Lafargeholcim Ltd ADR and China Resources Cement, you can compare the effects of market volatilities on Lafargeholcim and China Resources 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 Lafargeholcim with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lafargeholcim and China Resources.

Diversification Opportunities for Lafargeholcim and China Resources

0.67

Correlation Coefficient

Lafargeholcim  China Resources

Poor diversification

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

Pair Corralation between Lafargeholcim and China Resources

Assuming the 90 days horizon Lafargeholcim Ltd ADR is expected to generate 0.31 times more return on investment than China Resources. However, Lafargeholcim Ltd ADR is 3.25 times less risky than China Resources. It trades about 0.1 of its potential returns per unit of risk. China Resources Cement is currently generating about -0.01 per unit of risk. If you would invest  910.00  in Lafargeholcim Ltd ADR on February 21, 2024 and sell it today you would earn a total of  823.00  from holding Lafargeholcim Ltd ADR or generate 90.44% return on investment over 90 days.

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

Lafargeholcim Ltd ADR  vs.  China Resources Cement

Lafargeholcim ADR

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lafargeholcim Ltd ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Lafargeholcim showed solid returns over the last few months and may actually be approaching a breakup point.

China Resources Cement

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Cement are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lafargeholcim and China Resources

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

The idea behind Lafargeholcim Ltd ADR and China Resources Cement 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.