Correlation Between China Railway and IQIYI

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

Diversification Opportunities for China Railway and IQIYI

0.25

Correlation Coefficient

China Railway  IQIYI

Modest diversification

The 3 months correlation between China and IQIYI is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and iQIYI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iQIYI Inc 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 IQIYI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iQIYI Inc has no effect on the direction of China Railway i.e., China Railway and IQIYI go up and down completely randomly.

Pair Corralation between China Railway and IQIYI

Assuming the 90 days horizon China Railway Group is expected to under-perform the IQIYI. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Railway Group is 2.36 times less risky than IQIYI. The pink sheet trades about -0.09 of its potential returns per unit of risk. The iQIYI Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  208.00  in iQIYI Inc on September 17, 2024 and sell it today you would earn a total of  1.00  from holding iQIYI Inc or generate 0.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

China Railway Group  vs.  iQIYI Inc

China Railway Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, China Railway reported solid returns over the last few months and may actually be approaching a breakup point.

iQIYI Inc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iQIYI Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, IQIYI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Railway and IQIYI

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

The idea behind China Railway Group and iQIYI Inc 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..