Correlation Between China Railway and Mingchen Health

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

By analyzing existing cross correlation between China Railway Group and Mingchen Health Co, you can compare the effects of market volatilities on China Railway and Mingchen Health 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 Mingchen Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Mingchen Health.

Diversification Opportunities for China Railway and Mingchen Health

0.79

Correlation Coefficient

China Railway  Mingchen Health

Poor diversification

The 3 months correlation between China and Mingchen is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Mingchen Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mingchen Health 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 Group are associated (or correlated) with Mingchen Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mingchen Health has no effect on the direction of China Railway i.e., China Railway and Mingchen Health go up and down completely randomly.

Pair Corralation between China Railway and Mingchen Health

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Mingchen Health. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 1.41 times less risky than Mingchen Health. The stock trades about 0.0 of its potential returns per unit of risk. The Mingchen Health Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,588  in Mingchen Health Co on September 13, 2024 and sell it today you would earn a total of  97.00  from holding Mingchen Health Co or generate 6.11% return on investment over 90 days.

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

China Railway Group  vs.  Mingchen Health Co

China Railway Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group 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.

Mingchen Health

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mingchen Health Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mingchen Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Mingchen Health

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

The idea behind China Railway Group and Mingchen Health Co 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.