Correlation Between NBTM New and China Railway

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

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

Diversification Opportunities for NBTM New and China Railway

0.64

Correlation Coefficient

NBTM New  China Railway

Poor diversification

The 3 months correlation between NBTM and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NBTM New Materials and China Railway Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Materials and NBTM New 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 NBTM New Materials 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 Materials has no effect on the direction of NBTM New i.e., NBTM New and China Railway go up and down completely randomly.

Pair Corralation between NBTM New and China Railway

Assuming the 90 days trading horizon NBTM New is expected to generate 1.27 times less return on investment than China Railway. In addition to that, NBTM New is 1.52 times more volatile than China Railway Materials. It trades about 0.09 of its total potential returns per unit of risk. China Railway Materials is currently generating about 0.18 per unit of volatility. If you would invest  229.00  in China Railway Materials on September 18, 2024 and sell it today you would earn a total of  62.00  from holding China Railway Materials or generate 27.07% return on investment over 90 days.

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

NBTM New Materials  vs.  China Railway Materials

NBTM New Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NBTM New Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NBTM New sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NBTM New and China Railway

The main advantage of trading using opposite NBTM New and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NBTM New 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 NBTM New Materials and China Railway Materials 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.