Correlation Between Railway Signal and Zhongshan Public

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

Diversification Opportunities for Railway Signal and Zhongshan Public

0.91

Correlation Coefficient

Railway Signal  Zhongshan Public

Almost no diversification

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

Pair Corralation between Railway Signal and Zhongshan Public

Assuming the 90 days trading horizon Railway Signal Communication is expected to generate 1.2 times more return on investment than Zhongshan Public. However, Railway Signal is 1.2 times more volatile than Zhongshan Public Utilities. It trades about 0.12 of its potential returns per unit of risk. Zhongshan Public Utilities is currently generating about 0.13 per unit of risk. If you would invest  522.00  in Railway Signal Communication on September 25, 2024 and sell it today you would earn a total of  118.00  from holding Railway Signal Communication or generate 22.61% return on investment over 90 days.

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

Railway Signal Communication  vs.  Zhongshan Public Utilities

Railway Signal Commu

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Railway Signal Communication are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Railway Signal sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhongshan Public Uti

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Public Utilities are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongshan Public sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Railway Signal and Zhongshan Public

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

The idea behind Railway Signal Communication and Zhongshan Public Utilities 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.