Correlation Between Guangzhou Tinci and China Railway

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

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

Diversification Opportunities for Guangzhou Tinci and China Railway

0.76

Correlation Coefficient

Guangzhou Tinci  China Railway

Poor diversification

The 3 months correlation between Guangzhou and China is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Tinci Materials 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 Guangzhou Tinci 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 Guangzhou Tinci Materials 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 Guangzhou Tinci i.e., Guangzhou Tinci and China Railway go up and down completely randomly.

Pair Corralation between Guangzhou Tinci and China Railway

Assuming the 90 days trading horizon Guangzhou Tinci Materials is expected to generate 1.5 times more return on investment than China Railway. However, Guangzhou Tinci is 1.5 times more volatile than China Railway Construction. It trades about 0.2 of its potential returns per unit of risk. China Railway Construction is currently generating about 0.16 per unit of risk. If you would invest  1,442  in Guangzhou Tinci Materials on September 4, 2024 and sell it today you would earn a total of  975.00  from holding Guangzhou Tinci Materials or generate 67.61% return on investment over 90 days.

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

Guangzhou Tinci Materials  vs.  China Railway Construction

Guangzhou Tinci Materials

Risk-Adjusted Performance

16 of 100

Solid

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

China Railway Constr

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 12 (%) 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 Guangzhou Tinci and China Railway

The main advantage of trading using opposite Guangzhou Tinci and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangzhou Tinci 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 Guangzhou Tinci Materials 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.

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..