Correlation Between Sichuan Jinshi and China Railway

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

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

Diversification Opportunities for Sichuan Jinshi and China Railway

0.79

Correlation Coefficient

Sichuan Jinshi  China Railway

Poor diversification

The 3 months correlation between Sichuan and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Jinshi Technology and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr and Sichuan Jinshi 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 Sichuan Jinshi Technology 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 Constr has no effect on the direction of Sichuan Jinshi i.e., Sichuan Jinshi and China Railway go up and down completely randomly.

Pair Corralation between Sichuan Jinshi and China Railway

Assuming the 90 days trading horizon Sichuan Jinshi Technology is expected to generate 0.81 times more return on investment than China Railway. However, Sichuan Jinshi Technology is 1.24 times less risky than China Railway. It trades about 0.3 of its potential returns per unit of risk. China Railway Construction is currently generating about 0.18 per unit of risk. If you would invest  486.00  in Sichuan Jinshi Technology on September 12, 2024 and sell it today you would earn a total of  267.00  from holding Sichuan Jinshi Technology or generate 54.94% return on investment over 90 days.

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

Sichuan Jinshi Technology  vs.  China Railway Construction

Sichuan Jinshi Technology

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Jinshi Technology are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Jinshi sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Constr

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Jinshi and China Railway

The main advantage of trading using opposite Sichuan Jinshi and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sichuan Jinshi 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 Sichuan Jinshi Technology and China Railway Construction 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.