Correlation Between China Railway and Tianjin Jingwei

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

Diversification Opportunities for China Railway and Tianjin Jingwei

0.38

Correlation Coefficient

China Railway  Tianjin Jingwei

Weak diversification

The 3 months correlation between China and Tianjin is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Tianjin Jingwei Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Jingwei Electric 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 Tianjin Jingwei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Jingwei Electric has no effect on the direction of China Railway i.e., China Railway and Tianjin Jingwei go up and down completely randomly.

Pair Corralation between China Railway and Tianjin Jingwei

Assuming the 90 days trading horizon China Railway Group is expected to generate 0.47 times more return on investment than Tianjin Jingwei. However, China Railway Group is 2.14 times less risky than Tianjin Jingwei. It trades about -0.35 of its potential returns per unit of risk. Tianjin Jingwei Electric is currently generating about -0.44 per unit of risk. If you would invest  659.00  in China Railway Group on October 11, 2024 and sell it today you would lose (68.00) from holding China Railway Group or give up 10.32% of portfolio value over 90 days.

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

China Railway Group  vs.  Tianjin Jingwei 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.

Tianjin Jingwei Electric

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Jingwei Electric are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Jingwei sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Tianjin Jingwei

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

The idea behind China Railway Group and Tianjin Jingwei 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.