Correlation Between China Railway and Sinomach Automobile

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

Diversification Opportunities for China Railway and Sinomach Automobile

0.42

Correlation Coefficient

China Railway  Sinomach Automobile

Very weak diversification

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

Pair Corralation between China Railway and Sinomach Automobile

Assuming the 90 days trading horizon China Railway Construction is expected to under-perform the Sinomach Automobile. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Construction is 1.55 times less risky than Sinomach Automobile. The stock trades about -0.06 of its potential returns per unit of risk. The Sinomach Automobile Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  612.00  in Sinomach Automobile Co on December 2, 2024 and sell it today you would earn a total of  40.00  from holding Sinomach Automobile Co or generate 6.54% return on investment over 90 days.

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

China Railway Construction  vs.  Sinomach Automobile Co

China Railway Constr

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Sinomach Automobile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sinomach Automobile Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sinomach Automobile 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 Sinomach Automobile

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

The idea behind China Railway Construction and Sinomach Automobile 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.