Correlation Between China Railway and Scottish Mortgage

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

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

Diversification Opportunities for China Railway and Scottish Mortgage

-0.26

Correlation Coefficient

China Railway  Scottish Mortgage

Very good diversification

The 3 months correlation between China and Scottish is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Scottish Mortgage Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scottish Mortgage and China Railway 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 China Railway Construction are associated (or correlated) with Scottish Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scottish Mortgage has no effect on the direction of China Railway i.e., China Railway and Scottish Mortgage go up and down completely randomly.

Pair Corralation between China Railway and Scottish Mortgage

If you would invest  1,061  in Scottish Mortgage Investment on October 7, 2024 and sell it today you would earn a total of  107.00  from holding Scottish Mortgage Investment or generate 10.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.44%
Values	Daily Returns

China Railway Construction  vs.  Scottish Mortgage Investment

China Railway Constr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Railway Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Scottish Mortgage

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Scottish Mortgage Investment are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Scottish Mortgage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Scottish Mortgage

The main advantage of trading using opposite China Railway and Scottish Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway position performs unexpectedly, Scottish Mortgage 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 Scottish Mortgage will offset losses from the drop in Scottish Mortgage's long position.

The idea behind China Railway Construction and Scottish Mortgage Investment 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.