Correlation Between China Railway and Tokyu Construction

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

Diversification Opportunities for China Railway and Tokyu Construction

-0.46

Correlation Coefficient

China Railway  Tokyu Construction

Very good diversification

The 3 months correlation between China and Tokyu is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Tokyu Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyu 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 Tokyu Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyu Construction has no effect on the direction of China Railway i.e., China Railway and Tokyu Construction go up and down completely randomly.

Pair Corralation between China Railway and Tokyu Construction

Assuming the 90 days horizon China Railway Construction is expected to generate 2.18 times more return on investment than Tokyu Construction. However, China Railway is 2.18 times more volatile than Tokyu Construction Co. It trades about 0.01 of its potential returns per unit of risk. Tokyu Construction Co is currently generating about 0.0 per unit of risk. If you would invest  66.00  in China Railway Construction on September 30, 2024 and sell it today you would lose (2.00) from holding China Railway Construction or give up 3.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

China Railway Construction  vs.  Tokyu Construction Co

China Railway Constr

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tokyu Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyu Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tokyu Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Railway and Tokyu Construction

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

The idea behind China Railway Construction and Tokyu Construction Co 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.