Correlation Between Railway Signal and Guangzhou Dongfang

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

By analyzing existing cross correlation between Railway Signal Communication and Guangzhou Dongfang Hotel, you can compare the effects of market volatilities on Railway Signal and Guangzhou Dongfang 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 Railway Signal with a short position of Guangzhou Dongfang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Railway Signal and Guangzhou Dongfang.

Diversification Opportunities for Railway Signal and Guangzhou Dongfang

0.72

Correlation Coefficient

Railway Signal  Guangzhou Dongfang

Poor diversification

The 3 months correlation between Railway and Guangzhou is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Railway Signal Communication and Guangzhou Dongfang Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Dongfang Hotel and Railway Signal 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 Railway Signal Communication are associated (or correlated) with Guangzhou Dongfang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Dongfang Hotel has no effect on the direction of Railway Signal i.e., Railway Signal and Guangzhou Dongfang go up and down completely randomly.

Pair Corralation between Railway Signal and Guangzhou Dongfang

Assuming the 90 days trading horizon Railway Signal Communication is expected to under-perform the Guangzhou Dongfang. But the stock apears to be less risky and, when comparing its historical volatility, Railway Signal Communication is 1.82 times less risky than Guangzhou Dongfang. The stock trades about -0.14 of its potential returns per unit of risk. The Guangzhou Dongfang Hotel is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,060  in Guangzhou Dongfang Hotel on December 2, 2024 and sell it today you would lose (95.00) from holding Guangzhou Dongfang Hotel or give up 8.96% of portfolio value over 90 days.

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

Railway Signal Communication  vs.  Guangzhou Dongfang Hotel

Railway Signal Commu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Railway Signal Communication 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.

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangzhou Dongfang Hotel 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.

Pair Trading with Railway Signal and Guangzhou Dongfang

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

The idea behind Railway Signal Communication and Guangzhou Dongfang Hotel 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.