Correlation Between Jiangsu Xinning and China Railway

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

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

Diversification Opportunities for Jiangsu Xinning and China Railway

0.88

Correlation Coefficient

Jiangsu Xinning  China Railway

Very poor diversification

The 3 months correlation between Jiangsu and China is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu Xinning Modern and China Railway Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Materials and Jiangsu Xinning 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 Jiangsu Xinning Modern 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 Materials has no effect on the direction of Jiangsu Xinning i.e., Jiangsu Xinning and China Railway go up and down completely randomly.

Pair Corralation between Jiangsu Xinning and China Railway

Assuming the 90 days trading horizon Jiangsu Xinning Modern is expected to generate 1.94 times more return on investment than China Railway. However, Jiangsu Xinning is 1.94 times more volatile than China Railway Materials. It trades about 0.26 of its potential returns per unit of risk. China Railway Materials is currently generating about 0.2 per unit of risk. If you would invest  232.00  in Jiangsu Xinning Modern on September 13, 2024 and sell it today you would earn a total of  197.00  from holding Jiangsu Xinning Modern or generate 84.91% return on investment over 90 days.

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

Jiangsu Xinning Modern  vs.  China Railway Materials

Jiangsu Xinning Modern

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Xinning Modern are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Xinning sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Materials

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 15 (%) 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 Jiangsu Xinning and China Railway

The main advantage of trading using opposite Jiangsu Xinning and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jiangsu Xinning 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 Jiangsu Xinning Modern and China Railway Materials 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.