Correlation Between AVIC Fund and China Railway

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

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

Diversification Opportunities for AVIC Fund and China Railway

-0.66

Correlation Coefficient

AVIC Fund  China Railway

Excellent diversification

The 3 months correlation between AVIC and China is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding AVIC Fund Management and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr and AVIC Fund 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 AVIC Fund Management 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 Constr has no effect on the direction of AVIC Fund i.e., AVIC Fund and China Railway go up and down completely randomly.

Pair Corralation between AVIC Fund and China Railway

Assuming the 90 days trading horizon AVIC Fund Management is expected to generate 0.88 times more return on investment than China Railway. However, AVIC Fund Management is 1.13 times less risky than China Railway. It trades about 0.26 of its potential returns per unit of risk. China Railway Construction is currently generating about -0.2 per unit of risk. If you would invest  1,050  in AVIC Fund Management on December 24, 2024 and sell it today you would earn a total of  162.00  from holding AVIC Fund Management or generate 15.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

AVIC Fund Management  vs.  China Railway Construction

AVIC Fund Management

Risk-Adjusted Performance

Solid

Over the last 90 days AVIC Fund Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, AVIC Fund sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Constr

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with AVIC Fund and China Railway

The main advantage of trading using opposite AVIC Fund and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AVIC Fund 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 AVIC Fund Management and China Railway 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.