Correlation Between SSAW Hotels and China Railway

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

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

Diversification Opportunities for SSAW Hotels and China Railway

0.62

Correlation Coefficient

SSAW Hotels  China Railway

Poor diversification

The 3 months correlation between SSAW and China is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SSAW Hotels Resorts 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 SSAW Hotels 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 SSAW Hotels Resorts 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 SSAW Hotels i.e., SSAW Hotels and China Railway go up and down completely randomly.

Pair Corralation between SSAW Hotels and China Railway

Assuming the 90 days trading horizon SSAW Hotels Resorts is expected to under-perform the China Railway. In addition to that, SSAW Hotels is 2.54 times more volatile than China Railway Construction. It trades about -0.31 of its total potential returns per unit of risk. China Railway Construction is currently generating about -0.56 per unit of volatility. If you would invest  482.00  in China Railway Construction on October 11, 2024 and sell it today you would lose (72.00) from holding China Railway Construction or give up 14.94% of portfolio value over 90 days.

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

SSAW Hotels Resorts  vs.  China Railway Construction

SSAW Hotels Resorts

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SSAW Hotels Resorts are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SSAW Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Railway Constr

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days China Railway Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SSAW Hotels and China Railway

The main advantage of trading using opposite SSAW Hotels and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SSAW Hotels 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 SSAW Hotels Resorts 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.