Correlation Between Shenzhen Kexin and China Railway

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

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

Diversification Opportunities for Shenzhen Kexin and China Railway

0.79

Correlation Coefficient

Shenzhen Kexin  China Railway

Poor diversification

The 3 months correlation between Shenzhen and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Kexin Communication 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 Shenzhen Kexin 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 Shenzhen Kexin Communication 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 Shenzhen Kexin i.e., Shenzhen Kexin and China Railway go up and down completely randomly.

Pair Corralation between Shenzhen Kexin and China Railway

Assuming the 90 days trading horizon Shenzhen Kexin Communication is expected to under-perform the China Railway. In addition to that, Shenzhen Kexin is 2.55 times more volatile than China Railway Construction. It trades about -0.04 of its total potential returns per unit of risk. China Railway Construction is currently generating about 0.08 per unit of volatility. If you would invest  916.00  in China Railway Construction on September 24, 2024 and sell it today you would earn a total of  16.00  from holding China Railway Construction or generate 1.75% return on investment over 90 days.

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

Shenzhen Kexin Communication  vs.  China Railway Construction

Shenzhen Kexin Commu

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Kexin Communication are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Kexin sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Constr

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 11 (%) 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 Shenzhen Kexin and China Railway

The main advantage of trading using opposite Shenzhen Kexin and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shenzhen Kexin 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 Shenzhen Kexin Communication 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.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.