Correlation Between Armada Hflr and China Railway

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

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

Diversification Opportunities for Armada Hflr and China Railway

-0.71

Correlation Coefficient

Armada Hflr  China Railway

Pay attention - limited upside

The 3 months correlation between Armada and China is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Armada Hflr Pr 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 Armada Hflr 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 Armada Hflr Pr 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 Armada Hflr i.e., Armada Hflr and China Railway go up and down completely randomly.

Pair Corralation between Armada Hflr and China Railway

Considering the 90-day investment horizon Armada Hflr Pr is expected to under-perform the China Railway. But the stock apears to be less risky and, when comparing its historical volatility, Armada Hflr Pr is 1.57 times less risky than China Railway. The stock trades about -0.07 of its potential returns per unit of risk. The China Railway Materials is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  230.00  in China Railway Materials on September 13, 2024 and sell it today you would earn a total of  67.00  from holding China Railway Materials or generate 29.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

Armada Hflr Pr  vs.  China Railway Materials

Armada Hflr Pr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armada Hflr Pr has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Armada Hflr is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

China Railway Materials

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 15 (%) 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 Armada Hflr and China Railway

The main advantage of trading using opposite Armada Hflr and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Armada Hflr 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 Armada Hflr Pr 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.