Correlation Between Jiangxi Hengda and China Railway

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

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

Diversification Opportunities for Jiangxi Hengda and China Railway

0.84

Correlation Coefficient

Jiangxi Hengda  China Railway

Very poor diversification

The 3 months correlation between Jiangxi and China is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Jiangxi Hengda Hi Tech and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr and Jiangxi Hengda 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 Jiangxi Hengda Hi Tech are associated (or correlated) with China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Constr has no effect on the direction of Jiangxi Hengda i.e., Jiangxi Hengda and China Railway go up and down completely randomly.

Pair Corralation between Jiangxi Hengda and China Railway

Assuming the 90 days trading horizon Jiangxi Hengda Hi Tech is expected to generate 0.93 times more return on investment than China Railway. However, Jiangxi Hengda Hi Tech is 1.08 times less risky than China Railway. It trades about 0.22 of its potential returns per unit of risk. China Railway Construction is currently generating about 0.18 per unit of risk. If you would invest  419.00  in Jiangxi Hengda Hi Tech on September 12, 2024 and sell it today you would earn a total of  179.00  from holding Jiangxi Hengda Hi Tech or generate 42.72% return on investment over 90 days.

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

Jiangxi Hengda Hi Tech  vs.  China Railway Construction

Jiangxi Hengda Hi

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Hengda Hi Tech are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Hengda sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Constr

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 14 (%) 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.

Pair Trading with Jiangxi Hengda and China Railway

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

The idea behind Jiangxi Hengda Hi Tech and China Railway Construction 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.