Correlation Between China Railway and Xiamen Jihong

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

By analyzing existing cross correlation between China Railway Construction and Xiamen Jihong Package, you can compare the effects of market volatilities on China Railway and Xiamen Jihong 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 China Railway with a short position of Xiamen Jihong. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Xiamen Jihong.

Diversification Opportunities for China Railway and Xiamen Jihong

0.86

Correlation Coefficient

China Railway  Xiamen Jihong

Very poor diversification

The 3 months correlation between China and Xiamen is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Xiamen Jihong Package in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Jihong Package and China Railway 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 China Railway Construction are associated (or correlated) with Xiamen Jihong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Jihong Package has no effect on the direction of China Railway i.e., China Railway and Xiamen Jihong go up and down completely randomly.

Pair Corralation between China Railway and Xiamen Jihong

Assuming the 90 days trading horizon China Railway Construction is expected to generate 0.7 times more return on investment than Xiamen Jihong. However, China Railway Construction is 1.43 times less risky than Xiamen Jihong. It trades about 0.05 of its potential returns per unit of risk. Xiamen Jihong Package is currently generating about 0.02 per unit of risk. If you would invest  422.00  in China Railway Construction on September 30, 2024 and sell it today you would earn a total of  28.00  from holding China Railway Construction or generate 6.64% return on investment over 90 days.

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

China Railway Construction  vs.  Xiamen Jihong Package

China Railway Constr

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xiamen Jihong Package

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Jihong Package are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiamen Jihong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Railway and Xiamen Jihong

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

The idea behind China Railway Construction and Xiamen Jihong Package 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.