Correlation Between China Railway and AECOM

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Can any of the company-specific risk be diversified away by investing in both China Railway and AECOM 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 AECOM 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 AECOM, you can compare the effects of market volatilities on China Railway and AECOM 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 AECOM. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and AECOM.

Diversification Opportunities for China Railway and AECOM

ChinaAECOMDiversified AwayChinaAECOMDiversified Away100%
-0.58
  Correlation Coefficient

Excellent diversification

The 3 months correlation between China and AECOM is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and AECOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AECOM 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 AECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AECOM has no effect on the direction of China Railway i.e., China Railway and AECOM go up and down completely randomly.

Pair Corralation between China Railway and AECOM

Assuming the 90 days horizon China Railway Construction is expected to under-perform the AECOM. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Construction is 1.69 times less risky than AECOM. The stock trades about -0.15 of its potential returns per unit of risk. The AECOM is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,626  in AECOM on October 13, 2024 and sell it today you would earn a total of  674.00  from holding AECOM or generate 7.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy98.33%
ValuesDaily Returns

China Railway Construction  vs.  AECOM

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 05101520
JavaScript chart by amCharts 3.21.154FF E6Z
       Timeline  
China Railway Constr 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan0.640.650.660.670.680.690.70.71
AECOM 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in AECOM are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, AECOM may actually be approaching a critical reversion point that can send shares even higher in February 2025.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan100105110

China Railway and AECOM Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.51-7.12-4.74-2.350.02.324.717.119.511.9 0.020.040.060.080.10
JavaScript chart by amCharts 3.21.154FF E6Z
       Returns  

Pair Trading with China Railway and AECOM

The main advantage of trading using opposite China Railway and AECOM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway position performs unexpectedly, AECOM 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 AECOM will offset losses from the drop in AECOM's long position.
The idea behind China Railway Construction and AECOM 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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