Correlation Between Railway Signal and China Railway

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

Diversification Opportunities for Railway Signal and China Railway

0.96

Correlation Coefficient

Railway Signal  China Railway

Almost no diversification

The 3 months correlation between Railway and China is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Railway Signal Communication and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group 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 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 Group has no effect on the direction of Railway Signal i.e., Railway Signal and China Railway go up and down completely randomly.

Pair Corralation between Railway Signal and China Railway

Assuming the 90 days trading horizon Railway Signal Communication is expected to generate 1.19 times more return on investment than China Railway. However, Railway Signal is 1.19 times more volatile than China Railway Group. It trades about 0.13 of its potential returns per unit of risk. China Railway Group is currently generating about 0.14 per unit of risk. If you would invest  508.00  in Railway Signal Communication on September 4, 2024 and sell it today you would earn a total of  135.00  from holding Railway Signal Communication or generate 26.57% return on investment over 90 days.

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

Railway Signal Communication  vs.  China Railway Group

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.

China Railway Group

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Railway Signal and China Railway

The main advantage of trading using opposite Railway Signal and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Railway Signal 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 Railway Signal Communication and China Railway Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.