Correlation Between China Railway and Inner Mongolia

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

Diversification Opportunities for China Railway and Inner Mongolia

0.91

Correlation Coefficient

China Railway  Inner Mongolia

Almost no diversification

The 3 months correlation between China and Inner is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Inner Mongolia Yitai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia Yitai 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 Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia Yitai has no effect on the direction of China Railway i.e., China Railway and Inner Mongolia go up and down completely randomly.

Pair Corralation between China Railway and Inner Mongolia

Assuming the 90 days trading horizon China Railway Group is expected to under-perform the Inner Mongolia. In addition to that, China Railway is 2.11 times more volatile than Inner Mongolia Yitai. It trades about -0.02 of its total potential returns per unit of risk. Inner Mongolia Yitai is currently generating about 0.03 per unit of volatility. If you would invest  218.00  in Inner Mongolia Yitai on September 13, 2024 and sell it today you would earn a total of  1.00  from holding Inner Mongolia Yitai or generate 0.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

China Railway Group  vs.  Inner Mongolia Yitai

China Railway Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 13 (%) 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.

Inner Mongolia Yitai

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with China Railway and Inner Mongolia

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

The idea behind China Railway Group and Inner Mongolia Yitai 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.