Correlation Between China Railway and Hoshine Silicon

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

Diversification Opportunities for China Railway and Hoshine Silicon

0.84

Correlation Coefficient

China Railway  Hoshine Silicon

Very poor diversification

The 3 months correlation between China and Hoshine is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Hoshine Silicon Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hoshine Silicon Ind 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 Hoshine Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hoshine Silicon Ind has no effect on the direction of China Railway i.e., China Railway and Hoshine Silicon go up and down completely randomly.

Pair Corralation between China Railway and Hoshine Silicon

Assuming the 90 days trading horizon China Railway Construction is expected to generate 0.92 times more return on investment than Hoshine Silicon. However, China Railway Construction is 1.09 times less risky than Hoshine Silicon. It trades about 0.12 of its potential returns per unit of risk. Hoshine Silicon Ind is currently generating about 0.11 per unit of risk. If you would invest  352.00  in China Railway Construction on September 21, 2024 and sell it today you would earn a total of  110.00  from holding China Railway Construction or generate 31.25% 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.  Hoshine Silicon Ind

China Railway Constr

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Construction are ranked lower than 15 (%) 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.

Hoshine Silicon Ind

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hoshine Silicon Ind are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hoshine Silicon sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Hoshine Silicon

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

The idea behind China Railway Construction and Hoshine Silicon Ind 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.