Correlation Between Mengtian Home and China Railway

Can any of the company-specific risk be diversified away by investing in both Mengtian Home and China Railway 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 Mengtian Home and China Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mengtian Home Group and China Railway Construction, you can compare the effects of market volatilities on Mengtian Home and China Railway 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 Mengtian Home with a short position of China Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mengtian Home and China Railway.

Diversification Opportunities for Mengtian Home and China Railway

0.39

Correlation Coefficient

Mengtian Home  China Railway

Weak diversification

The 3 months correlation between Mengtian and China is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Mengtian Home Group and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr and Mengtian Home 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 Mengtian Home Group are associated (or correlated) with China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Constr has no effect on the direction of Mengtian Home i.e., Mengtian Home and China Railway go up and down completely randomly.

Pair Corralation between Mengtian Home and China Railway

Assuming the 90 days trading horizon Mengtian Home Group is expected to generate 1.61 times more return on investment than China Railway. However, Mengtian Home is 1.61 times more volatile than China Railway Construction. It trades about 0.07 of its potential returns per unit of risk. China Railway Construction is currently generating about -0.03 per unit of risk. If you would invest  1,119  in Mengtian Home Group on December 27, 2024 and sell it today you would earn a total of  74.00  from holding Mengtian Home Group or generate 6.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Mengtian Home Group  vs.  China Railway Construction

Mengtian Home Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mengtian Home may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Railway Constr

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Construction 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.

Pair Trading with Mengtian Home and China Railway

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

The idea behind Mengtian Home Group and China Railway Construction 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.