Correlation Between China Railway and Eastroc Beverage

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

Diversification Opportunities for China Railway and Eastroc Beverage

-0.21

Correlation Coefficient

China Railway  Eastroc Beverage

Very good diversification

The 3 months correlation between China and Eastroc is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Eastroc Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastroc Beverage 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 Eastroc Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastroc Beverage has no effect on the direction of China Railway i.e., China Railway and Eastroc Beverage go up and down completely randomly.

Pair Corralation between China Railway and Eastroc Beverage

Assuming the 90 days trading horizon China Railway Group is expected to generate 0.35 times more return on investment than Eastroc Beverage. However, China Railway Group is 2.82 times less risky than Eastroc Beverage. It trades about -0.08 of its potential returns per unit of risk. Eastroc Beverage Group is currently generating about -0.09 per unit of risk. If you would invest  610.00  in China Railway Group on December 2, 2024 and sell it today you would lose (19.00) from holding China Railway Group or give up 3.11% of portfolio value over 90 days.

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

China Railway Group  vs.  Eastroc Beverage Group

China Railway Group

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Eastroc Beverage

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eastroc Beverage Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Eastroc Beverage 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 Eastroc Beverage

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

The idea behind China Railway Group and Eastroc Beverage Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.