Correlation Between Tianjin Pengling and China Railway

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

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

Diversification Opportunities for Tianjin Pengling and China Railway

0.95

Correlation Coefficient

Tianjin Pengling  China Railway

Almost no diversification

The 3 months correlation between Tianjin and China is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Pengling Rubber 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 Tianjin Pengling 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 Tianjin Pengling Rubber 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 Tianjin Pengling i.e., Tianjin Pengling and China Railway go up and down completely randomly.

Pair Corralation between Tianjin Pengling and China Railway

Assuming the 90 days trading horizon Tianjin Pengling Rubber is expected to generate 1.55 times more return on investment than China Railway. However, Tianjin Pengling is 1.55 times more volatile than China Railway Materials. It trades about 0.15 of its potential returns per unit of risk. China Railway Materials is currently generating about 0.17 per unit of risk. If you would invest  384.00  in Tianjin Pengling Rubber on September 16, 2024 and sell it today you would earn a total of  135.00  from holding Tianjin Pengling Rubber or generate 35.16% return on investment over 90 days.

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

Tianjin Pengling Rubber  vs.  China Railway Materials

Tianjin Pengling Rubber

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Pengling Rubber are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Pengling sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Materials

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 13 (%) 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 Tianjin Pengling and China Railway

The main advantage of trading using opposite Tianjin Pengling and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tianjin Pengling 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 Tianjin Pengling Rubber 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.