Correlation Between China Railway and Changshu Ruite

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

Diversification Opportunities for China Railway and Changshu Ruite

0.18

Correlation Coefficient

China Railway  Changshu Ruite

Average diversification

The 3 months correlation between China and Changshu is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Changshu Ruite Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changshu Ruite 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 Changshu Ruite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changshu Ruite Electric has no effect on the direction of China Railway i.e., China Railway and Changshu Ruite go up and down completely randomly.

Pair Corralation between China Railway and Changshu Ruite

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Changshu Ruite. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 1.71 times less risky than Changshu Ruite. The stock trades about -0.18 of its potential returns per unit of risk. The Changshu Ruite Electric is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  736.00  in Changshu Ruite Electric on December 25, 2024 and sell it today you would earn a total of  81.00  from holding Changshu Ruite Electric or generate 11.01% return on investment over 90 days.

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

China Railway Group  vs.  Changshu Ruite Electric

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.

Changshu Ruite Electric

Risk-Adjusted Performance

OK

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

Pair Trading with China Railway and Changshu Ruite

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

The idea behind China Railway Group and Changshu Ruite 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.