Correlation Between China Railway and China Publishing

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

Diversification Opportunities for China Railway and China Publishing

0.32

Correlation Coefficient

China Railway  China Publishing

Weak diversification

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

Pair Corralation between China Railway and China Publishing

Assuming the 90 days trading horizon China Railway Group is expected to generate 0.64 times more return on investment than China Publishing. However, China Railway Group is 1.55 times less risky than China Publishing. It trades about -0.01 of its potential returns per unit of risk. China Publishing Media is currently generating about -0.02 per unit of risk. If you would invest  731.00  in China Railway Group on October 4, 2024 and sell it today you would lose (92.00) from holding China Railway Group or give up 12.59% of portfolio value over 90 days.

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

China Railway Group  vs.  China Publishing Media

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.

China Publishing Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Publishing Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Publishing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Railway and China Publishing

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

The idea behind China Railway Group and China 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.