Correlation Between China Railway and Yantai Jereh

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

Diversification Opportunities for China Railway and Yantai Jereh

0.4

Correlation Coefficient

China Railway  Yantai Jereh

Very weak diversification

The 3 months correlation between China and Yantai is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Yantai Jereh Oilfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yantai Jereh Oilfield 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 Yantai Jereh. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yantai Jereh Oilfield has no effect on the direction of China Railway i.e., China Railway and Yantai Jereh go up and down completely randomly.

Pair Corralation between China Railway and Yantai Jereh

Assuming the 90 days trading horizon China Railway is expected to generate 11.93 times less return on investment than Yantai Jereh. But when comparing it to its historical volatility, China Railway Group is 1.26 times less risky than Yantai Jereh. It trades about 0.0 of its potential returns per unit of risk. Yantai Jereh Oilfield is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,994  in Yantai Jereh Oilfield on October 5, 2024 and sell it today you would earn a total of  648.00  from holding Yantai Jereh Oilfield or generate 21.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.67%
Values	Daily Returns

China Railway Group  vs.  Yantai Jereh Oilfield

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.

Yantai Jereh Oilfield

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Yantai Jereh Oilfield are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Yantai Jereh is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Railway and Yantai Jereh

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

The idea behind China Railway Group and Yantai Jereh Oilfield 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.