Correlation Between China Railway and Hangzhou Coco

Can any of the company-specific risk be diversified away by investing in both China Railway and Hangzhou Coco 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 Hangzhou Coco 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 Hangzhou Coco Healthcare, you can compare the effects of market volatilities on China Railway and Hangzhou Coco 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 Hangzhou Coco. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Hangzhou Coco.

Diversification Opportunities for China Railway and Hangzhou Coco

0.91

Correlation Coefficient

China Railway  Hangzhou Coco

Almost no diversification

The 3 months correlation between China and Hangzhou is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Hangzhou Coco Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Coco Healthcare 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 Hangzhou Coco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Coco Healthcare has no effect on the direction of China Railway i.e., China Railway and Hangzhou Coco go up and down completely randomly.

Pair Corralation between China Railway and Hangzhou Coco

Assuming the 90 days trading horizon China Railway Construction is expected to generate 0.96 times more return on investment than Hangzhou Coco. However, China Railway Construction is 1.04 times less risky than Hangzhou Coco. It trades about 0.18 of its potential returns per unit of risk. Hangzhou Coco Healthcare is currently generating about 0.17 per unit of risk. If you would invest  687.00  in China Railway Construction on September 12, 2024 and sell it today you would earn a total of  254.00  from holding China Railway Construction or generate 36.97% return on investment over 90 days.

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

China Railway Construction  vs.  Hangzhou Coco Healthcare

China Railway Constr

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 14 (%) 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.

Hangzhou Coco Healthcare

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Coco Healthcare are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Coco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Hangzhou Coco

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

The idea behind China Railway Construction and Hangzhou Coco Healthcare 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.