Correlation Between China Merchants and Railway Signal

Can any of the company-specific risk be diversified away by investing in both China Merchants and Railway Signal 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 Merchants and Railway Signal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Merchants Shekou and Railway Signal Communication, you can compare the effects of market volatilities on China Merchants and Railway Signal 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 Merchants with a short position of Railway Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Railway Signal.

Diversification Opportunities for China Merchants and Railway Signal

0.5

Correlation Coefficient

China Merchants  Railway Signal

Very weak diversification

The 3 months correlation between China and Railway is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Railway Signal Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Railway Signal Commu and China Merchants 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 Merchants Shekou are associated (or correlated) with Railway Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Railway Signal Commu has no effect on the direction of China Merchants i.e., China Merchants and Railway Signal go up and down completely randomly.

Pair Corralation between China Merchants and Railway Signal

Assuming the 90 days trading horizon China Merchants Shekou is expected to under-perform the Railway Signal. In addition to that, China Merchants is 1.17 times more volatile than Railway Signal Communication. It trades about -0.01 of its total potential returns per unit of risk. Railway Signal Communication is currently generating about 0.03 per unit of volatility. If you would invest  502.00  in Railway Signal Communication on October 5, 2024 and sell it today you would earn a total of  92.00  from holding Railway Signal Communication or generate 18.33% return on investment over 90 days.

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

China Merchants Shekou  vs.  Railway Signal Communication

China Merchants Shekou

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Merchants Shekou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Railway Signal Commu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Railway Signal Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Merchants and Railway Signal

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

The idea behind China Merchants Shekou and Railway Signal Communication 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.