Correlation Between China Railway and Beijing Kingsoft

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

Diversification Opportunities for China Railway and Beijing Kingsoft

0.43

Correlation Coefficient

China Railway  Beijing Kingsoft

Very weak diversification

The 3 months correlation between China and Beijing is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Beijing Kingsoft Office in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Kingsoft Office 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 Beijing Kingsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Kingsoft Office has no effect on the direction of China Railway i.e., China Railway and Beijing Kingsoft go up and down completely randomly.

Pair Corralation between China Railway and Beijing Kingsoft

Assuming the 90 days trading horizon China Railway Construction is expected to generate 0.57 times more return on investment than Beijing Kingsoft. However, China Railway Construction is 1.74 times less risky than Beijing Kingsoft. It trades about 0.02 of its potential returns per unit of risk. Beijing Kingsoft Office is currently generating about 0.01 per unit of risk. If you would invest  766.00  in China Railway Construction on October 25, 2024 and sell it today you would earn a total of  81.00  from holding China Railway Construction or generate 10.57% return on investment over 90 days.

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

China Railway Construction  vs.  Beijing Kingsoft Office

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.

Beijing Kingsoft Office

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with China Railway and Beijing Kingsoft

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

The idea behind China Railway Construction and Beijing Kingsoft Office 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.