Correlation Between Bohai Leasing and China Railway

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

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

Diversification Opportunities for Bohai Leasing and China Railway

0.54

Correlation Coefficient

Bohai Leasing  China Railway

Very weak diversification

The 3 months correlation between Bohai and China is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Bohai Leasing Co and China Railway Tielong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Tielong and Bohai Leasing 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 Bohai Leasing Co 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 Tielong has no effect on the direction of Bohai Leasing i.e., Bohai Leasing and China Railway go up and down completely randomly.

Pair Corralation between Bohai Leasing and China Railway

Assuming the 90 days trading horizon Bohai Leasing Co is expected to under-perform the China Railway. In addition to that, Bohai Leasing is 1.49 times more volatile than China Railway Tielong. It trades about -0.49 of its total potential returns per unit of risk. China Railway Tielong is currently generating about -0.52 per unit of volatility. If you would invest  642.00  in China Railway Tielong on October 11, 2024 and sell it today you would lose (84.00) from holding China Railway Tielong or give up 13.08% of portfolio value over 90 days.

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

Bohai Leasing Co  vs.  China Railway Tielong

Bohai Leasing

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bohai Leasing Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bohai Leasing sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Tielong

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Railway Tielong has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bohai Leasing and China Railway

The main advantage of trading using opposite Bohai Leasing and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bohai Leasing 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 Bohai Leasing Co and China Railway Tielong 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 Valuation module to check real value of public entities based on technical and fundamental data.