Correlation Between YiDong Electronics and China Railway

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

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

Diversification Opportunities for YiDong Electronics and China Railway

-0.73

Correlation Coefficient

YiDong Electronics  China Railway

Pay attention - limited upside

The 3 months correlation between YiDong and China is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding YiDong Electronics Technology and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and YiDong Electronics 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 YiDong Electronics 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 Group has no effect on the direction of YiDong Electronics i.e., YiDong Electronics and China Railway go up and down completely randomly.

Pair Corralation between YiDong Electronics and China Railway

Assuming the 90 days trading horizon YiDong Electronics Technology is expected to generate 3.95 times more return on investment than China Railway. However, YiDong Electronics is 3.95 times more volatile than China Railway Group. It trades about 0.08 of its potential returns per unit of risk. China Railway Group is currently generating about -0.17 per unit of risk. If you would invest  2,021  in YiDong Electronics Technology on December 4, 2024 and sell it today you would earn a total of  338.00  from holding YiDong Electronics Technology or generate 16.72% return on investment over 90 days.

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

YiDong Electronics Technology  vs.  China Railway Group

YiDong Electronics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in YiDong Electronics Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, YiDong Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with YiDong Electronics and China Railway

The main advantage of trading using opposite YiDong Electronics and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if YiDong Electronics 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 YiDong Electronics Technology and China Railway Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.