Correlation Between CapitaLand Investment and China Railway

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

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

Diversification Opportunities for CapitaLand Investment and China Railway

0.39

Correlation Coefficient

CapitaLand Investment  China Railway

Weak diversification

The 3 months correlation between CapitaLand and China is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CapitaLand Investment Limited and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and CapitaLand Investment 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 CapitaLand Investment Limited 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 Group has no effect on the direction of CapitaLand Investment i.e., CapitaLand Investment and China Railway go up and down completely randomly.

Pair Corralation between CapitaLand Investment and China Railway

Assuming the 90 days horizon CapitaLand Investment Limited is expected to under-perform the China Railway. But the stock apears to be less risky and, when comparing its historical volatility, CapitaLand Investment Limited is 1.87 times less risky than China Railway. The stock trades about -0.21 of its potential returns per unit of risk. The China Railway Group is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  46.00  in China Railway Group on October 21, 2024 and sell it today you would lose (1.00) from holding China Railway Group or give up 2.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CapitaLand Investment Limited  vs.  China Railway Group

CapitaLand Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CapitaLand Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady 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.

China Railway Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CapitaLand Investment and China Railway

The main advantage of trading using opposite CapitaLand Investment and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CapitaLand Investment 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 CapitaLand Investment Limited and China Railway Group 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.