Correlation Between China Railway and Kuangda Technology

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

Diversification Opportunities for China Railway and Kuangda Technology

0.64

Correlation Coefficient

China Railway  Kuangda Technology

Poor diversification

The 3 months correlation between China and Kuangda is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Materials and Kuangda Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuangda Technology 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 Kuangda Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuangda Technology has no effect on the direction of China Railway i.e., China Railway and Kuangda Technology go up and down completely randomly.

Pair Corralation between China Railway and Kuangda Technology

Assuming the 90 days trading horizon China Railway Materials is expected to under-perform the Kuangda Technology. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Materials is 1.47 times less risky than Kuangda Technology. The stock trades about -0.05 of its potential returns per unit of risk. The Kuangda Technology Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  521.00  in Kuangda Technology Group on December 30, 2024 and sell it today you would earn a total of  9.00  from holding Kuangda Technology Group or generate 1.73% return on investment over 90 days.

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

China Railway Materials  vs.  Kuangda Technology Group

China Railway Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kuangda Technology

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kuangda Technology Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Kuangda Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Railway and Kuangda Technology

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

The idea behind China Railway Materials and Kuangda Technology 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.