Correlation Between Caihong Display and China Railway

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

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

Diversification Opportunities for Caihong Display and China Railway

-0.1

Correlation Coefficient

Caihong Display  China Railway

Good diversification

The 3 months correlation between Caihong and China is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices 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 Caihong Display 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 Caihong Display Devices 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 Caihong Display i.e., Caihong Display and China Railway go up and down completely randomly.

Pair Corralation between Caihong Display and China Railway

Assuming the 90 days trading horizon Caihong Display Devices is expected to generate 1.26 times more return on investment than China Railway. However, Caihong Display is 1.26 times more volatile than China Railway Group. It trades about 0.02 of its potential returns per unit of risk. China Railway Group is currently generating about -0.02 per unit of risk. If you would invest  783.00  in Caihong Display Devices on October 9, 2024 and sell it today you would earn a total of  29.00  from holding Caihong Display Devices or generate 3.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.45%
Values	Daily Returns

Caihong Display Devices  vs.  China Railway Group

Caihong Display Devices

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caihong Display Devices are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Caihong Display may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 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 Caihong Display and China Railway

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

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.