Correlation Between Agricultural Bank and China Railway

Can any of the company-specific risk be diversified away by investing in both Agricultural Bank and China Railway 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 Agricultural Bank and China Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Agricultural Bank of and China Railway Group, you can compare the effects of market volatilities on Agricultural Bank and China Railway 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 Agricultural Bank with a short position of China Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agricultural Bank and China Railway.

Diversification Opportunities for Agricultural Bank and China Railway

-0.34

Correlation Coefficient

Agricultural Bank  China Railway

Very good diversification

The 3 months correlation between Agricultural and China is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Agricultural Bank of and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and Agricultural Bank 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 Agricultural Bank of are associated (or correlated) with China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Group has no effect on the direction of Agricultural Bank i.e., Agricultural Bank and China Railway go up and down completely randomly.

Pair Corralation between Agricultural Bank and China Railway

Assuming the 90 days trading horizon Agricultural Bank of is expected to generate 1.05 times more return on investment than China Railway. However, Agricultural Bank is 1.05 times more volatile than China Railway Group. It trades about 0.09 of its potential returns per unit of risk. China Railway Group is currently generating about -0.13 per unit of risk. If you would invest  482.00  in Agricultural Bank of on December 1, 2024 and sell it today you would earn a total of  31.00  from holding Agricultural Bank of or generate 6.43% return on investment over 90 days.

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

Agricultural Bank of  vs.  China Railway Group

Agricultural Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Agricultural Bank of are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Agricultural Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Railway Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Group 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.

Pair Trading with Agricultural Bank and China Railway

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

The idea behind Agricultural Bank of and China Railway Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.