Correlation Between Road Environment and China Express

Can any of the company-specific risk be diversified away by investing in both Road Environment and China Express 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 Road Environment and China Express into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Road Environment Technology and China Express Airlines, you can compare the effects of market volatilities on Road Environment and China Express 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 Road Environment with a short position of China Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Road Environment and China Express.

Diversification Opportunities for Road Environment and China Express

0.32

Correlation Coefficient

Road Environment  China Express

Weak diversification

The 3 months correlation between Road and China is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Road Environment Technology and China Express Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Express Airlines and Road Environment 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 Road Environment Technology are associated (or correlated) with China Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Express Airlines has no effect on the direction of Road Environment i.e., Road Environment and China Express go up and down completely randomly.

Pair Corralation between Road Environment and China Express

Assuming the 90 days trading horizon Road Environment is expected to generate 1.22 times less return on investment than China Express. In addition to that, Road Environment is 1.18 times more volatile than China Express Airlines. It trades about 0.06 of its total potential returns per unit of risk. China Express Airlines is currently generating about 0.08 per unit of volatility. If you would invest  582.00  in China Express Airlines on October 22, 2024 and sell it today you would earn a total of  146.00  from holding China Express Airlines or generate 25.09% return on investment over 90 days.

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

Road Environment Technology  vs.  China Express Airlines

Road Environment Tec

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Road Environment Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Road Environment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Express Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Express Airlines 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 Road Environment and China Express

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

The idea behind Road Environment Technology and China Express Airlines 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.