Correlation Between China Railway and VIRG NATL

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

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

Diversification Opportunities for China Railway and VIRG NATL

0.15

Correlation Coefficient

China Railway  VIRG NATL

Average diversification

The 3 months correlation between China and VIRG is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and VIRG NATL BANKSH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIRG NATL BANKSH and China Railway 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 China Railway Construction are associated (or correlated) with VIRG NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIRG NATL BANKSH has no effect on the direction of China Railway i.e., China Railway and VIRG NATL go up and down completely randomly.

Pair Corralation between China Railway and VIRG NATL

Assuming the 90 days horizon China Railway Construction is expected to generate 1.17 times more return on investment than VIRG NATL. However, China Railway is 1.17 times more volatile than VIRG NATL BANKSH. It trades about 0.13 of its potential returns per unit of risk. VIRG NATL BANKSH is currently generating about 0.05 per unit of risk. If you would invest  50.00  in China Railway Construction on September 14, 2024 and sell it today you would earn a total of  14.00  from holding China Railway Construction or generate 28.0% return on investment over 90 days.

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

China Railway Construction  vs.  VIRG NATL BANKSH

China Railway Constr

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway reported solid returns over the last few months and may actually be approaching a breakup point.

VIRG NATL BANKSH

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VIRG NATL BANKSH are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, VIRG NATL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Railway and VIRG NATL

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

The idea behind China Railway Construction and VIRG NATL BANKSH 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.