Correlation Between China Railway and Strait Innovation

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

Diversification Opportunities for China Railway and Strait Innovation

0.36
  Correlation Coefficient

Weak diversification

The 3 months correlation between China and Strait is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Strait Innovation Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strait Innovation 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 Strait Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strait Innovation has no effect on the direction of China Railway i.e., China Railway and Strait Innovation go up and down completely randomly.

Pair Corralation between China Railway and Strait Innovation

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Strait Innovation. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 2.64 times less risky than Strait Innovation. The stock trades about -0.11 of its potential returns per unit of risk. The Strait Innovation Internet is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  236.00  in Strait Innovation Internet on October 24, 2024 and sell it today you would earn a total of  42.00  from holding Strait Innovation Internet or generate 17.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

China Railway Group  vs.  Strait Innovation Internet

 Performance 
       Timeline  
China Railway Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Strait Innovation 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Strait Innovation Internet are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Strait Innovation sustained solid returns over the last few months and may actually be approaching a breakup point.

China Railway and Strait Innovation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Railway and Strait Innovation

The main advantage of trading using opposite China Railway and Strait Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway position performs unexpectedly, Strait Innovation 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 Strait Innovation will offset losses from the drop in Strait Innovation's long position.
The idea behind China Railway Group and Strait Innovation Internet 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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