Correlation Between China Railway and Sunwoda Electronic

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

Diversification Opportunities for China Railway and Sunwoda Electronic

-0.02

Correlation Coefficient

China Railway  Sunwoda Electronic

Good diversification

The 3 months correlation between China and Sunwoda is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Sunwoda Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunwoda Electronic 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 Sunwoda Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunwoda Electronic has no effect on the direction of China Railway i.e., China Railway and Sunwoda Electronic go up and down completely randomly.

Pair Corralation between China Railway and Sunwoda Electronic

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Sunwoda Electronic. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 2.01 times less risky than Sunwoda Electronic. The stock trades about -0.18 of its potential returns per unit of risk. The Sunwoda Electronic is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,259  in Sunwoda Electronic on December 25, 2024 and sell it today you would lose (2.00) from holding Sunwoda Electronic or give up 0.09% of portfolio value over 90 days.

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

China Railway Group  vs.  Sunwoda 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.

Sunwoda Electronic

Risk-Adjusted Performance

Very Weak

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

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

The idea behind China Railway Group and Sunwoda 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.