Correlation Between China Railway and Wintime Energy

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

Diversification Opportunities for China Railway and Wintime Energy

0.45

Correlation Coefficient

China Railway  Wintime Energy

Very weak diversification

The 3 months correlation between China and Wintime is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Wintime Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wintime Energy 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 Wintime Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wintime Energy has no effect on the direction of China Railway i.e., China Railway and Wintime Energy go up and down completely randomly.

Pair Corralation between China Railway and Wintime Energy

Assuming the 90 days trading horizon China Railway is expected to generate 1.98 times less return on investment than Wintime Energy. But when comparing it to its historical volatility, China Railway Group is 1.28 times less risky than Wintime Energy. It trades about 0.04 of its potential returns per unit of risk. Wintime Energy Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  139.00  in Wintime Energy Co on September 30, 2024 and sell it today you would earn a total of  44.00  from holding Wintime Energy Co or generate 31.65% return on investment over 90 days.

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

China Railway Group  vs.  Wintime Energy Co

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 somewhat strong basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wintime Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wintime Energy Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wintime Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Wintime Energy

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

The idea behind China Railway Group and Wintime Energy Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.