Correlation Between Railway Signal and Guangzhou Fangbang

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

By analyzing existing cross correlation between Railway Signal Communication and Guangzhou Fangbang Electronics, you can compare the effects of market volatilities on Railway Signal and Guangzhou Fangbang 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 Railway Signal with a short position of Guangzhou Fangbang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Railway Signal and Guangzhou Fangbang.

Diversification Opportunities for Railway Signal and Guangzhou Fangbang

0.84

Correlation Coefficient

Railway Signal  Guangzhou Fangbang

Very poor diversification

The 3 months correlation between Railway and Guangzhou is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Railway Signal Communication and Guangzhou Fangbang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Fangbang and Railway Signal 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 Railway Signal Communication are associated (or correlated) with Guangzhou Fangbang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Fangbang has no effect on the direction of Railway Signal i.e., Railway Signal and Guangzhou Fangbang go up and down completely randomly.

Pair Corralation between Railway Signal and Guangzhou Fangbang

Assuming the 90 days trading horizon Railway Signal Communication is expected to under-perform the Guangzhou Fangbang. But the stock apears to be less risky and, when comparing its historical volatility, Railway Signal Communication is 1.84 times less risky than Guangzhou Fangbang. The stock trades about -0.1 of its potential returns per unit of risk. The Guangzhou Fangbang Electronics is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,110  in Guangzhou Fangbang Electronics on October 1, 2024 and sell it today you would lose (343.00) from holding Guangzhou Fangbang Electronics or give up 8.35% of portfolio value over 90 days.

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

Railway Signal Communication  vs.  Guangzhou Fangbang Electronics

Railway Signal Commu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Railway Signal Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Guangzhou Fangbang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Fangbang Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangzhou Fangbang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Railway Signal and Guangzhou Fangbang

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

The idea behind Railway Signal Communication and Guangzhou Fangbang Electronics 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.