Correlation Between Railway Signal and Lier Chemical

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

Diversification Opportunities for Railway Signal and Lier Chemical

0.89

Correlation Coefficient

Railway Signal  Lier Chemical

Very poor diversification

The 3 months correlation between Railway and Lier is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Railway Signal Communication and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical 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 Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Railway Signal i.e., Railway Signal and Lier Chemical go up and down completely randomly.

Pair Corralation between Railway Signal and Lier Chemical

Assuming the 90 days trading horizon Railway Signal Communication is expected to under-perform the Lier Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Railway Signal Communication is 1.97 times less risky than Lier Chemical. The stock trades about -0.21 of its potential returns per unit of risk. The Lier Chemical Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  880.00  in Lier Chemical Co on September 22, 2024 and sell it today you would lose (24.00) from holding Lier Chemical Co or give up 2.73% of portfolio value over 90 days.

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

Railway Signal Communication  vs.  Lier Chemical Co

Railway Signal Commu

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Railway Signal Communication are ranked lower than 11 (%) 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.

Lier Chemical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lier Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Railway Signal and Lier Chemical

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

The idea behind Railway Signal Communication and Lier Chemical Co 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.