Correlation Between Railway Signal and Gome Telecom

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

Diversification Opportunities for Railway Signal and Gome Telecom

0.42

Correlation Coefficient

Railway Signal  Gome Telecom

Very weak diversification

The 3 months correlation between Railway and Gome is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Railway Signal Communication and Gome Telecom Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gome Telecom Equipment 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 Gome Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gome Telecom Equipment has no effect on the direction of Railway Signal i.e., Railway Signal and Gome Telecom go up and down completely randomly.

Pair Corralation between Railway Signal and Gome Telecom

Assuming the 90 days trading horizon Railway Signal is expected to generate 1.15 times less return on investment than Gome Telecom. But when comparing it to its historical volatility, Railway Signal Communication is 1.07 times less risky than Gome Telecom. It trades about 0.14 of its potential returns per unit of risk. Gome Telecom Equipment is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  148.00  in Gome Telecom Equipment on August 31, 2024 and sell it today you would earn a total of  47.00  from holding Gome Telecom Equipment or generate 31.76% return on investment over 90 days.

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

Railway Signal Communication  vs.  Gome Telecom Equipment

Railway Signal Commu

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Railway Signal Communication are ranked lower than 10 (%) 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.

Gome Telecom Equipment

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Railway Signal and Gome Telecom

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

The idea behind Railway Signal Communication and Gome Telecom Equipment 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.