Correlation Between China Railway and Digital Locations

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

Diversification Opportunities for China Railway and Digital Locations

0.04

Correlation Coefficient

China Railway  Digital Locations

Significant diversification

The 3 months correlation between China and Digital is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Digital Locations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Locations 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 Digital Locations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Locations has no effect on the direction of China Railway i.e., China Railway and Digital Locations go up and down completely randomly.

Pair Corralation between China Railway and Digital Locations

Assuming the 90 days horizon China Railway Group is expected to generate 0.38 times more return on investment than Digital Locations. However, China Railway Group is 2.61 times less risky than Digital Locations. It trades about 0.07 of its potential returns per unit of risk. Digital Locations is currently generating about 0.01 per unit of risk. If you would invest  42.00  in China Railway Group on September 12, 2024 and sell it today you would earn a total of  8.00  from holding China Railway Group or generate 19.05% return on investment over 90 days.

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

China Railway Group  vs.  Digital Locations

China Railway Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway reported solid returns over the last few months and may actually be approaching a breakup point.

Digital Locations

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Locations are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Digital Locations exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Digital Locations

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

The idea behind China Railway Group and Digital Locations 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.