Correlation Between China Railway and Jinhui Liquor

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

Diversification Opportunities for China Railway and Jinhui Liquor

0.77

Correlation Coefficient

China Railway  Jinhui Liquor

Poor diversification

The 3 months correlation between China and Jinhui is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Jinhui Liquor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinhui Liquor 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 Jinhui Liquor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinhui Liquor has no effect on the direction of China Railway i.e., China Railway and Jinhui Liquor go up and down completely randomly.

Pair Corralation between China Railway and Jinhui Liquor

Assuming the 90 days trading horizon China Railway Construction is expected to generate 0.76 times more return on investment than Jinhui Liquor. However, China Railway Construction is 1.31 times less risky than Jinhui Liquor. It trades about -0.03 of its potential returns per unit of risk. Jinhui Liquor Co is currently generating about -0.06 per unit of risk. If you would invest  463.00  in China Railway Construction on October 4, 2024 and sell it today you would lose (23.00) from holding China Railway Construction or give up 4.97% of portfolio value over 90 days.

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

China Railway Construction  vs.  Jinhui Liquor Co

China Railway Constr

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jinhui Liquor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jinhui Liquor Co 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 China Railway and Jinhui Liquor

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

The idea behind China Railway Construction and Jinhui Liquor 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.