Correlation Between China Railway and Shenzhen Hifuture

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

By analyzing existing cross correlation between China Railway Group and Shenzhen Hifuture Electric, you can compare the effects of market volatilities on China Railway and Shenzhen Hifuture 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 Shenzhen Hifuture. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Shenzhen Hifuture.

Diversification Opportunities for China Railway and Shenzhen Hifuture

-0.06

Correlation Coefficient

China Railway  Shenzhen Hifuture

Good diversification

The 3 months correlation between China and Shenzhen is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Shenzhen Hifuture Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Hifuture 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 Group are associated (or correlated) with Shenzhen Hifuture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Hifuture has no effect on the direction of China Railway i.e., China Railway and Shenzhen Hifuture go up and down completely randomly.

Pair Corralation between China Railway and Shenzhen Hifuture

Assuming the 90 days trading horizon China Railway Group is expected to generate 0.55 times more return on investment than Shenzhen Hifuture. However, China Railway Group is 1.8 times less risky than Shenzhen Hifuture. It trades about 0.0 of its potential returns per unit of risk. Shenzhen Hifuture Electric is currently generating about -0.02 per unit of risk. If you would invest  631.00  in China Railway Group on October 5, 2024 and sell it today you would lose (21.00) from holding China Railway Group or give up 3.33% of portfolio value over 90 days.

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

China Railway Group  vs.  Shenzhen Hifuture Electric

China Railway Group

Risk-Adjusted Performance

0 of 100

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.

Shenzhen Hifuture

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Hifuture Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Hifuture sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Shenzhen Hifuture

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

The idea behind China Railway Group and Shenzhen Hifuture Electric 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.