Correlation Between China Railway and EVE Energy

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

Diversification Opportunities for China Railway and EVE Energy

0.79

Correlation Coefficient

China Railway  EVE Energy

Poor diversification

The 3 months correlation between China and EVE is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and EVE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVE Energy 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 EVE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVE Energy has no effect on the direction of China Railway i.e., China Railway and EVE Energy go up and down completely randomly.

Pair Corralation between China Railway and EVE Energy

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the EVE Energy. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 2.07 times less risky than EVE Energy. The stock trades about -0.4 of its potential returns per unit of risk. The EVE Energy is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  4,600  in EVE Energy on October 25, 2024 and sell it today you would lose (310.00) from holding EVE Energy or give up 6.74% of portfolio value over 90 days.

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

China Railway Group  vs.  EVE Energy

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.

EVE Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EVE Energy 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 China Railway and EVE Energy

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

The idea behind China Railway Group and EVE Energy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.