Correlation Between China Railway and Granite Construction

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

Diversification Opportunities for China Railway and Granite Construction

-0.5

Correlation Coefficient

China Railway  Granite Construction

Very good diversification

The 3 months correlation between China and Granite is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction 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 Granite Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Granite Construction has no effect on the direction of China Railway i.e., China Railway and Granite Construction go up and down completely randomly.

Pair Corralation between China Railway and Granite Construction

If you would invest  64.00  in China Railway Construction on October 10, 2024 and sell it today you would earn a total of  0.00  from holding China Railway Construction or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

China Railway Construction  vs.  Granite Construction

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 latest fragile 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.

Granite Construction

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Granite Construction

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

The idea behind China Railway Construction and Granite 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.