Correlation Between China Railway and Gansu Jiu

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

Diversification Opportunities for China Railway and Gansu Jiu

0.39

Correlation Coefficient

China Railway  Gansu Jiu

Weak diversification

The 3 months correlation between China and Gansu is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Gansu Jiu Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gansu Jiu Steel 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 Gansu Jiu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gansu Jiu Steel has no effect on the direction of China Railway i.e., China Railway and Gansu Jiu go up and down completely randomly.

Pair Corralation between China Railway and Gansu Jiu

Assuming the 90 days trading horizon China Railway Group is expected to generate 1.14 times more return on investment than Gansu Jiu. However, China Railway is 1.14 times more volatile than Gansu Jiu Steel. It trades about 0.03 of its potential returns per unit of risk. Gansu Jiu Steel is currently generating about 0.01 per unit of risk. If you would invest  538.00  in China Railway Group on October 4, 2024 and sell it today you would earn a total of  101.00  from holding China Railway Group or generate 18.77% 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.  Gansu Jiu Steel

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.

Gansu Jiu Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gansu Jiu Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gansu Jiu may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Railway and Gansu Jiu

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

The idea behind China Railway Group and Gansu Jiu Steel 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.