Correlation Between Zhongrun Resources and China Railway

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

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

Diversification Opportunities for Zhongrun Resources and China Railway

0.64

Correlation Coefficient

Zhongrun Resources  China Railway

Poor diversification

The 3 months correlation between Zhongrun and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Zhongrun Resources Investment and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and Zhongrun Resources 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 Zhongrun Resources Investment 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 Group has no effect on the direction of Zhongrun Resources i.e., Zhongrun Resources and China Railway go up and down completely randomly.

Pair Corralation between Zhongrun Resources and China Railway

Assuming the 90 days trading horizon Zhongrun Resources Investment is expected to under-perform the China Railway. In addition to that, Zhongrun Resources is 2.16 times more volatile than China Railway Group. It trades about 0.0 of its total potential returns per unit of risk. China Railway Group is currently generating about 0.03 per unit of volatility. If you would invest  581.00  in China Railway Group on September 14, 2024 and sell it today you would earn a total of  80.00  from holding China Railway Group or generate 13.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.61%
Values	Daily Returns

Zhongrun Resources Investment  vs.  China Railway Group

Zhongrun Resources

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongrun Resources Investment are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongrun Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhongrun Resources and China Railway

The main advantage of trading using opposite Zhongrun Resources and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhongrun Resources 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 Zhongrun Resources Investment and China Railway Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.