Correlation Between China Railway and Suzhou Xingye

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

Diversification Opportunities for China Railway and Suzhou Xingye

0.16

Correlation Coefficient

China Railway  Suzhou Xingye

Average diversification

The 3 months correlation between China and Suzhou is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Materials and Suzhou Xingye Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Xingye Material 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 Suzhou Xingye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Xingye Material has no effect on the direction of China Railway i.e., China Railway and Suzhou Xingye go up and down completely randomly.

Pair Corralation between China Railway and Suzhou Xingye

Assuming the 90 days trading horizon China Railway Materials is expected to under-perform the Suzhou Xingye. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Materials is 3.22 times less risky than Suzhou Xingye. The stock trades about -0.05 of its potential returns per unit of risk. The Suzhou Xingye Material is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  846.00  in Suzhou Xingye Material on December 30, 2024 and sell it today you would earn a total of  324.00  from holding Suzhou Xingye Material or generate 38.3% return on investment over 90 days.

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

China Railway Materials  vs.  Suzhou Xingye Material

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.

Suzhou Xingye Material

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Xingye Material are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Xingye sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Suzhou Xingye

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

The idea behind China Railway Materials and Suzhou Xingye Material 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.