Correlation Between China Railway and Jiangsu Xinning

Can any of the company-specific risk be diversified away by investing in both China Railway and Jiangsu Xinning 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 Jiangsu Xinning 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 Jiangsu Xinning Modern, you can compare the effects of market volatilities on China Railway and Jiangsu Xinning 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 Jiangsu Xinning. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Jiangsu Xinning.

Diversification Opportunities for China Railway and Jiangsu Xinning

0.88

Correlation Coefficient

China Railway  Jiangsu Xinning

Very poor diversification

The 3 months correlation between China and Jiangsu is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Jiangsu Xinning Modern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Xinning Modern 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 Jiangsu Xinning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Xinning Modern has no effect on the direction of China Railway i.e., China Railway and Jiangsu Xinning go up and down completely randomly.

Pair Corralation between China Railway and Jiangsu Xinning

Assuming the 90 days trading horizon China Railway Construction is expected to generate 0.4 times more return on investment than Jiangsu Xinning. However, China Railway Construction is 2.52 times less risky than Jiangsu Xinning. It trades about -0.18 of its potential returns per unit of risk. Jiangsu Xinning Modern is currently generating about -0.11 per unit of risk. If you would invest  948.00  in China Railway Construction on December 4, 2024 and sell it today you would lose (110.00) from holding China Railway Construction or give up 11.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

China Railway Construction  vs.  Jiangsu Xinning Modern

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 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.

Jiangsu Xinning Modern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jiangsu Xinning Modern 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 China Railway and Jiangsu Xinning

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

The idea behind China Railway Construction and Jiangsu Xinning Modern 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.