Correlation Between China Railway and Tsingtao Brewery

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

Diversification Opportunities for China Railway and Tsingtao Brewery

0.14

Correlation Coefficient

China Railway  Tsingtao Brewery

Average diversification

The 3 months correlation between China and Tsingtao is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Tsingtao Brewery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsingtao Brewery 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 Tsingtao Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsingtao Brewery has no effect on the direction of China Railway i.e., China Railway and Tsingtao Brewery go up and down completely randomly.

Pair Corralation between China Railway and Tsingtao Brewery

Assuming the 90 days trading horizon China Railway Construction is expected to under-perform the Tsingtao Brewery. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Construction is 1.4 times less risky than Tsingtao Brewery. The stock trades about -0.3 of its potential returns per unit of risk. The Tsingtao Brewery Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,348  in Tsingtao Brewery Co on October 9, 2024 and sell it today you would earn a total of  212.00  from holding Tsingtao Brewery Co or generate 2.89% return on investment over 90 days.

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

China Railway Construction  vs.  Tsingtao Brewery Co

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 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.

Tsingtao Brewery

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with China Railway and Tsingtao Brewery

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

The idea behind China Railway Construction and Tsingtao Brewery Co 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.

Check out your portfolio center.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.