Correlation Between Shandong Sanyuan and China Railway

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

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

Diversification Opportunities for Shandong Sanyuan and China Railway

0.88

Correlation Coefficient

Shandong Sanyuan  China Railway

Very poor diversification

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

Pair Corralation between Shandong Sanyuan and China Railway

Assuming the 90 days trading horizon Shandong Sanyuan Biotechnology is expected to generate 0.83 times more return on investment than China Railway. However, Shandong Sanyuan Biotechnology is 1.2 times less risky than China Railway. It trades about 0.03 of its potential returns per unit of risk. China Railway Group is currently generating about -0.02 per unit of risk. If you would invest  2,797  in Shandong Sanyuan Biotechnology on September 4, 2024 and sell it today you would earn a total of  24.00  from holding Shandong Sanyuan Biotechnology or generate 0.86% return on investment over 90 days.

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

Shandong Sanyuan Biotechnology  vs.  China Railway Group

Shandong Sanyuan Bio

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sanyuan Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 11 (%) 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 Shandong Sanyuan and China Railway

The main advantage of trading using opposite Shandong Sanyuan and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong Sanyuan 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 Shandong Sanyuan Biotechnology and China Railway Group 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.