Correlation Between Bank of Qingdao and China Railway

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

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

Diversification Opportunities for Bank of Qingdao and China Railway

-0.17

Correlation Coefficient

Bank of Qingdao  China Railway

Good diversification

The 3 months correlation between Bank and China is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Qingdao and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and Bank of Qingdao 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 Bank of Qingdao 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 Group has no effect on the direction of Bank of Qingdao i.e., Bank of Qingdao and China Railway go up and down completely randomly.

Pair Corralation between Bank of Qingdao and China Railway

Assuming the 90 days trading horizon Bank of Qingdao is expected to generate 0.87 times more return on investment than China Railway. However, Bank of Qingdao is 1.15 times less risky than China Railway. It trades about 0.08 of its potential returns per unit of risk. China Railway Group is currently generating about -0.34 per unit of risk. If you would invest  378.00  in Bank of Qingdao on October 15, 2024 and sell it today you would earn a total of  7.00  from holding Bank of Qingdao or generate 1.85% return on investment over 90 days.

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

Bank of Qingdao  vs.  China Railway Group

Bank of Qingdao

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Qingdao are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Bank of Qingdao is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Railway Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Railway Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of Qingdao and China Railway

The main advantage of trading using opposite Bank of Qingdao and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Qingdao 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 Bank of Qingdao and China Railway Group 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.