Correlation Between China Railway and Shandong Hongchuang

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

By analyzing existing cross correlation between China Railway Materials and Shandong Hongchuang Aluminum, you can compare the effects of market volatilities on China Railway and Shandong Hongchuang 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 Shandong Hongchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Shandong Hongchuang.

Diversification Opportunities for China Railway and Shandong Hongchuang

0.88

Correlation Coefficient

China Railway  Shandong Hongchuang

Very poor diversification

The 3 months correlation between China and Shandong is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Materials and Shandong Hongchuang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hongchuang 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 Materials are associated (or correlated) with Shandong Hongchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hongchuang has no effect on the direction of China Railway i.e., China Railway and Shandong Hongchuang go up and down completely randomly.

Pair Corralation between China Railway and Shandong Hongchuang

Assuming the 90 days trading horizon China Railway is expected to generate 99.1 times less return on investment than Shandong Hongchuang. But when comparing it to its historical volatility, China Railway Materials is 1.75 times less risky than Shandong Hongchuang. It trades about 0.01 of its potential returns per unit of risk. Shandong Hongchuang Aluminum is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest  674.00  in Shandong Hongchuang Aluminum on September 23, 2024 and sell it today you would earn a total of  223.00  from holding Shandong Hongchuang Aluminum or generate 33.09% return on investment over 90 days.

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

China Railway Materials  vs.  Shandong Hongchuang Aluminum

China Railway Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 10 (%) 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.

Shandong Hongchuang

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Shandong Hongchuang

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

The idea behind China Railway Materials and Shandong Hongchuang Aluminum 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.