Correlation Between China Railway and Jiangsu GDK

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

Diversification Opportunities for China Railway and Jiangsu GDK

0.34

Correlation Coefficient

China Railway  Jiangsu GDK

Weak diversification

The 3 months correlation between China and Jiangsu is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Jiangsu GDK Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu GDK Biotechnology 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 Jiangsu GDK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu GDK Biotechnology has no effect on the direction of China Railway i.e., China Railway and Jiangsu GDK go up and down completely randomly.

Pair Corralation between China Railway and Jiangsu GDK

Assuming the 90 days trading horizon China Railway Group is expected to generate 0.54 times more return on investment than Jiangsu GDK. However, China Railway Group is 1.85 times less risky than Jiangsu GDK. It trades about -0.31 of its potential returns per unit of risk. Jiangsu GDK Biotechnology is currently generating about -0.54 per unit of risk. If you would invest  661.00  in China Railway Group on October 8, 2024 and sell it today you would lose (58.00) from holding China Railway Group or give up 8.77% 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.  Jiangsu GDK Biotechnology

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 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.

Jiangsu GDK Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jiangsu GDK Biotechnology 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Railway and Jiangsu GDK

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

The idea behind China Railway Group and Jiangsu GDK Biotechnology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..