Correlation Between Shenzhen Mindray and Railway Signal

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

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

Diversification Opportunities for Shenzhen Mindray and Railway Signal

0.83

Correlation Coefficient

Shenzhen Mindray  Railway Signal

Very poor diversification

The 3 months correlation between Shenzhen and Railway is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Mindray Bio Medical 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 Shenzhen Mindray 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 Mindray Bio Medical 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 Shenzhen Mindray i.e., Shenzhen Mindray and Railway Signal go up and down completely randomly.

Pair Corralation between Shenzhen Mindray and Railway Signal

Assuming the 90 days trading horizon Shenzhen Mindray is expected to generate 1.86 times less return on investment than Railway Signal. But when comparing it to its historical volatility, Shenzhen Mindray Bio Medical is 1.01 times less risky than Railway Signal. It trades about 0.08 of its potential returns per unit of risk. Railway Signal Communication is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  484.00  in Railway Signal Communication on September 23, 2024 and sell it today you would earn a total of  143.00  from holding Railway Signal Communication or generate 29.55% return on investment over 90 days.

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

Shenzhen Mindray Bio Medical  vs.  Railway Signal Communication

Shenzhen Mindray Bio

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Mindray Bio Medical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Mindray 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 Shenzhen Mindray and Railway Signal

The main advantage of trading using opposite Shenzhen Mindray and Railway Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shenzhen Mindray 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 Shenzhen Mindray Bio Medical 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.