Correlation Between China Railway and Xiamen Jihong

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

Diversification Opportunities for China Railway and Xiamen Jihong

0.56

Correlation Coefficient

China Railway  Xiamen Jihong

Very weak diversification

The 3 months correlation between China and Xiamen is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Xiamen Jihong Package in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Jihong Package 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 Xiamen Jihong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Jihong Package has no effect on the direction of China Railway i.e., China Railway and Xiamen Jihong go up and down completely randomly.

Pair Corralation between China Railway and Xiamen Jihong

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Xiamen Jihong. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 2.1 times less risky than Xiamen Jihong. The stock trades about -0.16 of its potential returns per unit of risk. The Xiamen Jihong Package is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,360  in Xiamen Jihong Package on December 25, 2024 and sell it today you would lose (91.00) from holding Xiamen Jihong Package or give up 6.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

China Railway Group  vs.  Xiamen Jihong Package

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.

Xiamen Jihong Package

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiamen Jihong Package has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xiamen Jihong 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 Xiamen Jihong

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

The idea behind China Railway Group and Xiamen Jihong Package 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.