Correlation Between China Railway and Cambricon Technologies

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

By analyzing existing cross correlation between China Railway Materials and Cambricon Technologies Corp, you can compare the effects of market volatilities on China Railway and Cambricon Technologies 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 Railway with a short position of Cambricon Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Cambricon Technologies.

Diversification Opportunities for China Railway and Cambricon Technologies

0.92

Correlation Coefficient

China Railway  Cambricon Technologies

Almost no diversification

The 3 months correlation between China and Cambricon is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Materials and Cambricon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambricon Technologies and China Railway 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 Railway Materials are associated (or correlated) with Cambricon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambricon Technologies has no effect on the direction of China Railway i.e., China Railway and Cambricon Technologies go up and down completely randomly.

Pair Corralation between China Railway and Cambricon Technologies

Assuming the 90 days trading horizon China Railway is expected to generate 3.91 times less return on investment than Cambricon Technologies. But when comparing it to its historical volatility, China Railway Materials is 2.59 times less risky than Cambricon Technologies. It trades about 0.21 of its potential returns per unit of risk. Cambricon Technologies Corp is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  21,001  in Cambricon Technologies Corp on September 14, 2024 and sell it today you would earn a total of  36,698  from holding Cambricon Technologies Corp or generate 174.74% return on investment over 90 days.

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

China Railway Materials  vs.  Cambricon Technologies Corp

China Railway Materials

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Cambricon Technologies

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cambricon Technologies Corp are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cambricon Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Cambricon Technologies

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

The idea behind China Railway Materials and Cambricon Technologies Corp 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 Global Correlations module to find global opportunities by holding instruments from different markets.