Correlation Between China Railway and Guilin Seamild

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

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

Diversification Opportunities for China Railway and Guilin Seamild

-0.41

Correlation Coefficient

China Railway  Guilin Seamild

Very good diversification

The 3 months correlation between China and Guilin is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Guilin Seamild Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guilin Seamild Foods and China Railway 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 China Railway Construction are associated (or correlated) with Guilin Seamild. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guilin Seamild Foods has no effect on the direction of China Railway i.e., China Railway and Guilin Seamild go up and down completely randomly.

Pair Corralation between China Railway and Guilin Seamild

Assuming the 90 days trading horizon China Railway Construction is expected to under-perform the Guilin Seamild. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Construction is 2.34 times less risky than Guilin Seamild. The stock trades about -0.36 of its potential returns per unit of risk. The Guilin Seamild Foods is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,562  in Guilin Seamild Foods on October 24, 2024 and sell it today you would earn a total of  78.00  from holding Guilin Seamild Foods or generate 4.99% return on investment over 90 days.

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

China Railway Construction  vs.  Guilin Seamild Foods

China Railway Constr

Risk-Adjusted Performance

0 of 100

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 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.

Guilin Seamild Foods

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guilin Seamild Foods are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guilin Seamild sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Guilin Seamild

The main advantage of trading using opposite China Railway and Guilin Seamild positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway position performs unexpectedly, Guilin Seamild 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 Guilin Seamild will offset losses from the drop in Guilin Seamild's long position.

The idea behind China Railway Construction and Guilin Seamild Foods 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.