Correlation Between TRAINLINE PLC and Chaoda Modern

Can any of the company-specific risk be diversified away by investing in both TRAINLINE PLC and Chaoda Modern 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 TRAINLINE PLC and Chaoda Modern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TRAINLINE PLC LS and Chaoda Modern Agriculture, you can compare the effects of market volatilities on TRAINLINE PLC and Chaoda Modern 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 TRAINLINE PLC with a short position of Chaoda Modern. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAINLINE PLC and Chaoda Modern.

Diversification Opportunities for TRAINLINE PLC and Chaoda Modern

-0.53

Correlation Coefficient

TRAINLINE PLC  Chaoda Modern

Excellent diversification

The 3 months correlation between TRAINLINE and Chaoda is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding TRAINLINE PLC LS and Chaoda Modern Agriculture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chaoda Modern Agriculture and TRAINLINE PLC 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 TRAINLINE PLC LS are associated (or correlated) with Chaoda Modern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chaoda Modern Agriculture has no effect on the direction of TRAINLINE PLC i.e., TRAINLINE PLC and Chaoda Modern go up and down completely randomly.

Pair Corralation between TRAINLINE PLC and Chaoda Modern

Assuming the 90 days trading horizon TRAINLINE PLC is expected to generate 11.52 times less return on investment than Chaoda Modern. But when comparing it to its historical volatility, TRAINLINE PLC LS is 13.12 times less risky than Chaoda Modern. It trades about 0.12 of its potential returns per unit of risk. Chaoda Modern Agriculture is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Chaoda Modern Agriculture on September 29, 2024 and sell it today you would lose (3.00) from holding Chaoda Modern Agriculture or give up 60.0% of portfolio value over 90 days.

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

TRAINLINE PLC LS  vs.  Chaoda Modern Agriculture

TRAINLINE PLC LS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAINLINE PLC LS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAINLINE PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Chaoda Modern Agriculture

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chaoda Modern Agriculture are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Chaoda Modern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TRAINLINE PLC and Chaoda Modern

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

The idea behind TRAINLINE PLC LS and Chaoda Modern Agriculture 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.