Correlation Between Weihai Honglin and China Railway

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

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

Diversification Opportunities for Weihai Honglin and China Railway

-0.25

Correlation Coefficient

Weihai Honglin  China Railway

Very good diversification

The 3 months correlation between Weihai and China is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Weihai Honglin Electronic 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 Weihai Honglin 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 Weihai Honglin Electronic 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 Weihai Honglin i.e., Weihai Honglin and China Railway go up and down completely randomly.

Pair Corralation between Weihai Honglin and China Railway

Assuming the 90 days trading horizon Weihai Honglin Electronic is expected to generate 1.62 times more return on investment than China Railway. However, Weihai Honglin is 1.62 times more volatile than China Railway Group. It trades about 0.14 of its potential returns per unit of risk. China Railway Group is currently generating about -0.08 per unit of risk. If you would invest  1,260  in Weihai Honglin Electronic on October 11, 2024 and sell it today you would earn a total of  303.00  from holding Weihai Honglin Electronic or generate 24.05% return on investment over 90 days.

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

Weihai Honglin Electronic  vs.  China Railway Group

Weihai Honglin Electronic

Risk-Adjusted Performance

10 of 100

OK

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

China Railway Group

Risk-Adjusted Performance

0 of 100

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 Weihai Honglin and China Railway

The main advantage of trading using opposite Weihai Honglin and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Weihai Honglin 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 Weihai Honglin Electronic 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.