Correlation Between Guangdong Shenglu and Railway Signal

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

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

Diversification Opportunities for Guangdong Shenglu and Railway Signal

0.87

Correlation Coefficient

Guangdong Shenglu  Railway Signal

Very poor diversification

The 3 months correlation between Guangdong and Railway is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Shenglu Telecommunic 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 Guangdong Shenglu 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 Guangdong Shenglu Telecommunication 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 Guangdong Shenglu i.e., Guangdong Shenglu and Railway Signal go up and down completely randomly.

Pair Corralation between Guangdong Shenglu and Railway Signal

Assuming the 90 days trading horizon Guangdong Shenglu Telecommunication is expected to generate 2.0 times more return on investment than Railway Signal. However, Guangdong Shenglu is 2.0 times more volatile than Railway Signal Communication. It trades about 0.0 of its potential returns per unit of risk. Railway Signal Communication is currently generating about -0.21 per unit of risk. If you would invest  736.00  in Guangdong Shenglu Telecommunication on September 22, 2024 and sell it today you would lose (5.00) from holding Guangdong Shenglu Telecommunication or give up 0.68% of portfolio value over 90 days.

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

Guangdong Shenglu Telecommunic  vs.  Railway Signal Communication

Guangdong Shenglu

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Shenglu Telecommunication are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Shenglu sustained solid returns over the last few months and may actually be approaching a breakup point.

Railway Signal Commu

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Guangdong Shenglu and Railway Signal

The main advantage of trading using opposite Guangdong Shenglu and Railway Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Shenglu 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 Guangdong Shenglu Telecommunication 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..