Correlation Between China Railway and CSSC Offshore

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

Diversification Opportunities for China Railway and CSSC Offshore

0.34

Correlation Coefficient

China Railway  CSSC Offshore

Weak diversification

The 3 months correlation between China and CSSC is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Materials and CSSC Offshore Marine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSSC Offshore Marine 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 CSSC Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSSC Offshore Marine has no effect on the direction of China Railway i.e., China Railway and CSSC Offshore go up and down completely randomly.

Pair Corralation between China Railway and CSSC Offshore

Assuming the 90 days trading horizon China Railway Materials is expected to generate 0.93 times more return on investment than CSSC Offshore. However, China Railway Materials is 1.07 times less risky than CSSC Offshore. It trades about 0.18 of its potential returns per unit of risk. CSSC Offshore Marine is currently generating about -0.03 per unit of risk. If you would invest  229.00  in China Railway Materials on September 18, 2024 and sell it today you would earn a total of  62.00  from holding China Railway Materials or generate 27.07% return on investment over 90 days.

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

China Railway Materials  vs.  CSSC Offshore Marine

China Railway Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 14 (%) 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.

CSSC Offshore Marine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSSC Offshore Marine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CSSC Offshore 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 CSSC Offshore

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

The idea behind China Railway Materials and CSSC Offshore Marine 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.