Correlation Between Jiangsu GDK and China Railway

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

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

Diversification Opportunities for Jiangsu GDK and China Railway

0.8

Correlation Coefficient

Jiangsu GDK  China Railway

Very poor diversification

The 3 months correlation between Jiangsu and China is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Jiangsu GDK Biotechnology and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and Jiangsu GDK 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 Jiangsu GDK Biotechnology 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 Group has no effect on the direction of Jiangsu GDK i.e., Jiangsu GDK and China Railway go up and down completely randomly.

Pair Corralation between Jiangsu GDK and China Railway

Assuming the 90 days trading horizon Jiangsu GDK Biotechnology is expected to generate 1.67 times more return on investment than China Railway. However, Jiangsu GDK is 1.67 times more volatile than China Railway Group. It trades about 0.17 of its potential returns per unit of risk. China Railway Group is currently generating about 0.14 per unit of risk. If you would invest  1,081  in Jiangsu GDK Biotechnology on September 4, 2024 and sell it today you would earn a total of  537.00  from holding Jiangsu GDK Biotechnology or generate 49.68% return on investment over 90 days.

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

Jiangsu GDK Biotechnology  vs.  China Railway Group

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

13 of 100

Good

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

China Railway Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 11 (%) 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 Jiangsu GDK and China Railway

The main advantage of trading using opposite Jiangsu GDK and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jiangsu GDK 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 Jiangsu GDK Biotechnology and China Railway Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.