Correlation Between Ye Chiu and China Railway

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

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

Diversification Opportunities for Ye Chiu and China Railway

0.9

Correlation Coefficient

Ye Chiu  China Railway

Almost no diversification

The 3 months correlation between 601388 and China is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Ye Chiu Metal and China Railway Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Materials and Ye Chiu 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 Ye Chiu Metal 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 Materials has no effect on the direction of Ye Chiu i.e., Ye Chiu and China Railway go up and down completely randomly.

Pair Corralation between Ye Chiu and China Railway

Assuming the 90 days trading horizon Ye Chiu Metal is expected to generate 1.43 times more return on investment than China Railway. However, Ye Chiu is 1.43 times more volatile than China Railway Materials. It trades about -0.2 of its potential returns per unit of risk. China Railway Materials is currently generating about -0.31 per unit of risk. If you would invest  274.00  in Ye Chiu Metal on October 5, 2024 and sell it today you would lose (31.00) from holding Ye Chiu Metal or give up 11.31% of portfolio value over 90 days.

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

Ye Chiu Metal  vs.  China Railway Materials

Ye Chiu Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ye Chiu Metal 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.

China Railway Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Railway Materials 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 Ye Chiu and China Railway

The main advantage of trading using opposite Ye Chiu and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ye Chiu 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 Ye Chiu Metal and China Railway Materials 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.