Correlation Between China Railway and Contemporary Amperex

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

Diversification Opportunities for China Railway and Contemporary Amperex

0.32

Correlation Coefficient

China Railway  Contemporary Amperex

Weak diversification

The 3 months correlation between China and Contemporary is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Contemporary Amperex Technolog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contemporary Amperex 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 Contemporary Amperex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contemporary Amperex has no effect on the direction of China Railway i.e., China Railway and Contemporary Amperex go up and down completely randomly.

Pair Corralation between China Railway and Contemporary Amperex

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Contemporary Amperex. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Group is 1.52 times less risky than Contemporary Amperex. The stock trades about -0.1 of its potential returns per unit of risk. The Contemporary Amperex Technology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  25,348  in Contemporary Amperex Technology on November 28, 2024 and sell it today you would earn a total of  1,514  from holding Contemporary Amperex Technology or generate 5.97% return on investment over 90 days.

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

China Railway Group  vs.  Contemporary Amperex Technolog

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.

Contemporary Amperex

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Contemporary Amperex Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Contemporary Amperex may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with China Railway and Contemporary Amperex

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

The idea behind China Railway Group and Contemporary Amperex Technology 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.