Correlation Between China Railway and Bomesc Offshore

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

Diversification Opportunities for China Railway and Bomesc Offshore

0.87

Correlation Coefficient

China Railway  Bomesc Offshore

Very poor diversification

The 3 months correlation between China and Bomesc is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Materials and Bomesc Offshore Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bomesc Offshore Engi 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 Bomesc Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bomesc Offshore Engi has no effect on the direction of China Railway i.e., China Railway and Bomesc Offshore go up and down completely randomly.

Pair Corralation between China Railway and Bomesc Offshore

Assuming the 90 days trading horizon China Railway Materials is expected to under-perform the Bomesc Offshore. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Materials is 1.13 times less risky than Bomesc Offshore. The stock trades about -0.31 of its potential returns per unit of risk. The Bomesc Offshore Engineering is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,201  in Bomesc Offshore Engineering on October 21, 2024 and sell it today you would lose (4.00) from holding Bomesc Offshore Engineering or give up 0.33% of portfolio value over 90 days.

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

China Railway Materials  vs.  Bomesc Offshore Engineering

China Railway Materials

Risk-Adjusted Performance

0 of 100

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.

Bomesc Offshore Engi

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bomesc Offshore Engineering are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bomesc Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Railway and Bomesc Offshore

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

The idea behind China Railway Materials and Bomesc Offshore Engineering 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.