Correlation Between Bohai Leasing and Railway Signal

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

Diversification Opportunities for Bohai Leasing and Railway Signal

0.66

Correlation Coefficient

Bohai Leasing  Railway Signal

Poor diversification

The 3 months correlation between Bohai and Railway is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bohai Leasing Co and Railway Signal Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Railway Signal Commu 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 Railway Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Railway Signal Commu has no effect on the direction of Bohai Leasing i.e., Bohai Leasing and Railway Signal go up and down completely randomly.

Pair Corralation between Bohai Leasing and Railway Signal

Assuming the 90 days trading horizon Bohai Leasing Co is expected to under-perform the Railway Signal. In addition to that, Bohai Leasing is 1.44 times more volatile than Railway Signal Communication. It trades about -0.22 of its total potential returns per unit of risk. Railway Signal Communication is currently generating about -0.19 per unit of volatility. If you would invest  620.00  in Railway Signal Communication on October 26, 2024 and sell it today you would lose (36.00) from holding Railway Signal Communication or give up 5.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Bohai Leasing Co  vs.  Railway Signal Communication

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.

Railway Signal Commu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Railway Signal Communication 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 Railway Signal

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

The idea behind Bohai Leasing Co and Railway Signal Communication 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.