Correlation Between China Railway and Reliant Holdings

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

Diversification Opportunities for China Railway and Reliant Holdings

0.46

Correlation Coefficient

China Railway  Reliant Holdings

Very weak diversification

The 3 months correlation between China and Reliant is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Reliant Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliant Holdings 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 Reliant Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliant Holdings has no effect on the direction of China Railway i.e., China Railway and Reliant Holdings go up and down completely randomly.

Pair Corralation between China Railway and Reliant Holdings

Assuming the 90 days horizon China Railway is expected to generate 9.69 times less return on investment than Reliant Holdings. But when comparing it to its historical volatility, China Railway Group is 5.52 times less risky than Reliant Holdings. It trades about 0.07 of its potential returns per unit of risk. Reliant Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4.41  in Reliant Holdings on September 14, 2024 and sell it today you would earn a total of  0.70  from holding Reliant Holdings or generate 15.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

China Railway Group  vs.  Reliant Holdings

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.

Reliant Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliant Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Reliant Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Reliant Holdings

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

The idea behind China Railway Group and Reliant Holdings 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.