Correlation Between China Railway and Hangzhou Weiguang

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

Diversification Opportunities for China Railway and Hangzhou Weiguang

-0.47

Correlation Coefficient

China Railway  Hangzhou Weiguang

Very good diversification

The 3 months correlation between China and Hangzhou is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Hangzhou Weiguang Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Weiguang 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 Hangzhou Weiguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Weiguang has no effect on the direction of China Railway i.e., China Railway and Hangzhou Weiguang go up and down completely randomly.

Pair Corralation between China Railway and Hangzhou Weiguang

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Hangzhou Weiguang. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 2.67 times less risky than Hangzhou Weiguang. The stock trades about -0.17 of its potential returns per unit of risk. The Hangzhou Weiguang Electronic is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,500  in Hangzhou Weiguang Electronic on December 3, 2024 and sell it today you would earn a total of  671.00  from holding Hangzhou Weiguang Electronic or generate 26.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

China Railway Group  vs.  Hangzhou Weiguang Electronic

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.

Hangzhou Weiguang

Risk-Adjusted Performance

Good

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

Pair Trading with China Railway and Hangzhou Weiguang

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

The idea behind China Railway Group and Hangzhou Weiguang Electronic 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.