Correlation Between China Railway and Postal Savings

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

Diversification Opportunities for China Railway and Postal Savings

0.68

Correlation Coefficient

China Railway  Postal Savings

Poor diversification

The 3 months correlation between China and Postal is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Postal Savings Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Postal Savings Bank 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 Postal Savings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Postal Savings Bank has no effect on the direction of China Railway i.e., China Railway and Postal Savings go up and down completely randomly.

Pair Corralation between China Railway and Postal Savings

Assuming the 90 days trading horizon China Railway is expected to generate 4.0 times less return on investment than Postal Savings. But when comparing it to its historical volatility, China Railway Construction is 1.11 times less risky than Postal Savings. It trades about 0.05 of its potential returns per unit of risk. Postal Savings Bank is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  531.00  in Postal Savings Bank on September 29, 2024 and sell it today you would earn a total of  28.00  from holding Postal Savings Bank or generate 5.27% return on investment over 90 days.

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

China Railway Construction  vs.  Postal Savings Bank

China Railway Constr

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Postal Savings Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Postal Savings Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Postal Savings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Railway and Postal Savings

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

The idea behind China Railway Construction and Postal Savings Bank 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.