Correlation Between Hubei Geoway and China Railway

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

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

Diversification Opportunities for Hubei Geoway and China Railway

0.24

Correlation Coefficient

Hubei Geoway  China Railway

Modest diversification

The 3 months correlation between Hubei and China is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Geoway Investment 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 Hubei Geoway 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 Hubei Geoway Investment 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 Hubei Geoway i.e., Hubei Geoway and China Railway go up and down completely randomly.

Pair Corralation between Hubei Geoway and China Railway

Assuming the 90 days trading horizon Hubei Geoway is expected to generate 1.32 times less return on investment than China Railway. In addition to that, Hubei Geoway is 1.28 times more volatile than China Railway Materials. It trades about 0.12 of its total potential returns per unit of risk. China Railway Materials is currently generating about 0.21 per unit of volatility. If you would invest  229.00  in China Railway Materials on September 14, 2024 and sell it today you would earn a total of  71.00  from holding China Railway Materials or generate 31.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Hubei Geoway Investment  vs.  China Railway Materials

Hubei Geoway Investment

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Geoway Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Geoway sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Materials

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 16 (%) 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 Hubei Geoway and China Railway

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