Correlation Between CSSC Offshore and China Railway

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

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

Diversification Opportunities for CSSC Offshore and China Railway

0.93

Correlation Coefficient

CSSC Offshore  China Railway

Almost no diversification

The 3 months correlation between CSSC and China is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding CSSC Offshore Marine 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 CSSC Offshore 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 CSSC Offshore Marine 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 CSSC Offshore i.e., CSSC Offshore and China Railway go up and down completely randomly.

Pair Corralation between CSSC Offshore and China Railway

Assuming the 90 days trading horizon CSSC Offshore Marine is expected to generate 0.8 times more return on investment than China Railway. However, CSSC Offshore Marine is 1.25 times less risky than China Railway. It trades about -0.1 of its potential returns per unit of risk. China Railway Materials is currently generating about -0.15 per unit of risk. If you would invest  2,467  in CSSC Offshore Marine on December 5, 2024 and sell it today you would lose (179.00) from holding CSSC Offshore Marine or give up 7.26% of portfolio value over 90 days.

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

CSSC Offshore Marine  vs.  China Railway Materials

CSSC Offshore Marine

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSSC Offshore Marine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Railway Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Materials 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 CSSC Offshore and China Railway

The main advantage of trading using opposite CSSC Offshore and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSSC Offshore 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 CSSC Offshore Marine 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.