Correlation Between China Railway and Jiangsu Phoenix

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

Diversification Opportunities for China Railway and Jiangsu Phoenix

-0.28

Correlation Coefficient

China Railway  Jiangsu Phoenix

Very good diversification

The 3 months correlation between China and Jiangsu is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Jiangsu Phoenix Publishing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Phoenix Publ 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 Jiangsu Phoenix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Phoenix Publ has no effect on the direction of China Railway i.e., China Railway and Jiangsu Phoenix go up and down completely randomly.

Pair Corralation between China Railway and Jiangsu Phoenix

Assuming the 90 days trading horizon China Railway Construction is expected to under-perform the Jiangsu Phoenix. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Construction is 1.33 times less risky than Jiangsu Phoenix. The stock trades about -0.19 of its potential returns per unit of risk. The Jiangsu Phoenix Publishing is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,043  in Jiangsu Phoenix Publishing on September 28, 2024 and sell it today you would earn a total of  89.00  from holding Jiangsu Phoenix Publishing or generate 8.53% return on investment over 90 days.

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

China Railway Construction  vs.  Jiangsu Phoenix Publishing

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.

Jiangsu Phoenix Publ

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind China Railway Construction and Jiangsu Phoenix Publishing 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.