Correlation Between China Railway and Soochow Securities

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

Diversification Opportunities for China Railway and Soochow Securities

0.93

Correlation Coefficient

China Railway  Soochow Securities

Almost no diversification

The 3 months correlation between China and Soochow is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Soochow Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soochow Securities 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 Soochow Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soochow Securities has no effect on the direction of China Railway i.e., China Railway and Soochow Securities go up and down completely randomly.

Pair Corralation between China Railway and Soochow Securities

Assuming the 90 days trading horizon China Railway is expected to generate 46.29 times less return on investment than Soochow Securities. But when comparing it to its historical volatility, China Railway Group is 1.1 times less risky than Soochow Securities. It trades about 0.0 of its potential returns per unit of risk. Soochow Securities Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  628.00  in Soochow Securities Co on September 19, 2024 and sell it today you would earn a total of  181.00  from holding Soochow Securities Co or generate 28.82% return on investment over 90 days.

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

China Railway Group  vs.  Soochow Securities Co

China Railway Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 10 (%) 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.

Soochow Securities

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Soochow Securities Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Soochow Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Soochow Securities

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

The idea behind China Railway Group and Soochow Securities 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..