Correlation Between China Railway and Nanya New

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

Diversification Opportunities for China Railway and Nanya New

0.3

Correlation Coefficient

China Railway  Nanya New

Weak diversification

The 3 months correlation between China and Nanya is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Materials and Nanya New Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanya New 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 Nanya New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanya New Material has no effect on the direction of China Railway i.e., China Railway and Nanya New go up and down completely randomly.

Pair Corralation between China Railway and Nanya New

Assuming the 90 days trading horizon China Railway is expected to generate 5.05 times less return on investment than Nanya New. But when comparing it to its historical volatility, China Railway Materials is 1.79 times less risky than Nanya New. It trades about 0.02 of its potential returns per unit of risk. Nanya New Material is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,913  in Nanya New Material on October 20, 2024 and sell it today you would earn a total of  384.00  from holding Nanya New Material or generate 20.07% 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.  Nanya New Material

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.

Nanya New Material

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Railway Materials and Nanya New 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.