Correlation Between China Railway and Guangdong Wens

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

Diversification Opportunities for China Railway and Guangdong Wens

0.55

Correlation Coefficient

China Railway  Guangdong Wens

Very weak diversification

The 3 months correlation between China and Guangdong is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Guangdong Wens Foodstuff in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Wens Foodstuff 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 Guangdong Wens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Wens Foodstuff has no effect on the direction of China Railway i.e., China Railway and Guangdong Wens go up and down completely randomly.

Pair Corralation between China Railway and Guangdong Wens

Assuming the 90 days trading horizon China Railway Construction is expected to under-perform the Guangdong Wens. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Construction is 1.01 times less risky than Guangdong Wens. The stock trades about -0.18 of its potential returns per unit of risk. The Guangdong Wens Foodstuff is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,675  in Guangdong Wens Foodstuff on December 26, 2024 and sell it today you would lose (10.00) from holding Guangdong Wens Foodstuff or give up 0.6% of portfolio value over 90 days.

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

China Railway Construction  vs.  Guangdong Wens Foodstuff

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 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.

Guangdong Wens Foodstuff

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Wens Foodstuff has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangdong Wens is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Railway and Guangdong Wens

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

The idea behind China Railway Construction and Guangdong Wens Foodstuff 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.