Correlation Between Zhongshan Broad-Ocean and China Railway

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

By analyzing existing cross correlation between Zhongshan Broad Ocean Motor and China Railway Materials, you can compare the effects of market volatilities on Zhongshan Broad-Ocean and China Railway 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 Zhongshan Broad-Ocean with a short position of China Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongshan Broad-Ocean and China Railway.

Diversification Opportunities for Zhongshan Broad-Ocean and China Railway

-0.18

Correlation Coefficient

Zhongshan Broad-Ocean  China Railway

Good diversification

The 3 months correlation between Zhongshan and China is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Broad Ocean Motor and China Railway Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Materials and Zhongshan Broad-Ocean 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 Zhongshan Broad Ocean Motor are associated (or correlated) with China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Materials has no effect on the direction of Zhongshan Broad-Ocean i.e., Zhongshan Broad-Ocean and China Railway go up and down completely randomly.

Pair Corralation between Zhongshan Broad-Ocean and China Railway

Assuming the 90 days trading horizon Zhongshan Broad Ocean Motor is expected to generate 1.98 times more return on investment than China Railway. However, Zhongshan Broad-Ocean is 1.98 times more volatile than China Railway Materials. It trades about 0.12 of its potential returns per unit of risk. China Railway Materials is currently generating about -0.03 per unit of risk. If you would invest  583.00  in Zhongshan Broad Ocean Motor on December 26, 2024 and sell it today you would earn a total of  99.00  from holding Zhongshan Broad Ocean Motor or generate 16.98% return on investment over 90 days.

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

Zhongshan Broad Ocean Motor  vs.  China Railway Materials

Zhongshan Broad Ocean

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Broad Ocean Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongshan Broad-Ocean sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Zhongshan Broad-Ocean and China Railway

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

The idea behind Zhongshan Broad Ocean Motor and China Railway Materials 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.