Correlation Between China Railway and Shandong Publishing

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

Diversification Opportunities for China Railway and Shandong Publishing

-0.63

Correlation Coefficient

China Railway  Shandong Publishing

Excellent diversification

The 3 months correlation between China and Shandong is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Shandong Publishing Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Publishing Media 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 Shandong Publishing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Publishing Media has no effect on the direction of China Railway i.e., China Railway and Shandong Publishing go up and down completely randomly.

Pair Corralation between China Railway and Shandong Publishing

Assuming the 90 days trading horizon China Railway Group is expected to generate 1.25 times more return on investment than Shandong Publishing. However, China Railway is 1.25 times more volatile than Shandong Publishing Media. It trades about 0.14 of its potential returns per unit of risk. Shandong Publishing Media is currently generating about -0.1 per unit of risk. If you would invest  526.00  in China Railway Group on September 4, 2024 and sell it today you would earn a total of  125.00  from holding China Railway Group or generate 23.76% return on investment over 90 days.

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

China Railway Group  vs.  Shandong Publishing Media

China Railway Group

Risk-Adjusted Performance

11 of 100

Good

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

Shandong Publishing Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Publishing Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Railway and Shandong Publishing

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

The idea behind China Railway Group and Shandong Publishing Media 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.