Correlation Between Rising Nonferrous and China Railway

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

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

Diversification Opportunities for Rising Nonferrous and China Railway

-0.14

Correlation Coefficient

Rising Nonferrous  China Railway

Good diversification

The 3 months correlation between Rising and China is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Rising Nonferrous Metals 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 Rising Nonferrous 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 Rising Nonferrous Metals 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 Rising Nonferrous i.e., Rising Nonferrous and China Railway go up and down completely randomly.

Pair Corralation between Rising Nonferrous and China Railway

Assuming the 90 days trading horizon Rising Nonferrous Metals is expected to generate 1.98 times more return on investment than China Railway. However, Rising Nonferrous is 1.98 times more volatile than China Railway Construction. It trades about 0.12 of its potential returns per unit of risk. China Railway Construction is currently generating about -0.07 per unit of risk. If you would invest  2,858  in Rising Nonferrous Metals on December 24, 2024 and sell it today you would earn a total of  494.00  from holding Rising Nonferrous Metals or generate 17.28% return on investment over 90 days.

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

Rising Nonferrous Metals  vs.  China Railway Construction

Rising Nonferrous Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Nonferrous Metals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rising Nonferrous 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 somewhat strong basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rising Nonferrous and China Railway

The main advantage of trading using opposite Rising Nonferrous and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rising Nonferrous 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 Rising Nonferrous Metals 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.