Correlation Between China Railway and Semiconductor Manufacturing

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

Diversification Opportunities for China Railway and Semiconductor Manufacturing

0.88

Correlation Coefficient

China Railway  Semiconductor Manufacturing

Very poor diversification

The 3 months correlation between China and Semiconductor is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Semiconductor Manufacturing El in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semiconductor Manufacturing 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 Semiconductor Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semiconductor Manufacturing has no effect on the direction of China Railway i.e., China Railway and Semiconductor Manufacturing go up and down completely randomly.

Pair Corralation between China Railway and Semiconductor Manufacturing

Assuming the 90 days trading horizon China Railway Construction is expected to generate 0.75 times more return on investment than Semiconductor Manufacturing. However, China Railway Construction is 1.34 times less risky than Semiconductor Manufacturing. It trades about -0.19 of its potential returns per unit of risk. Semiconductor Manufacturing Electronics is currently generating about -0.21 per unit of risk. If you would invest  477.00  in China Railway Construction on September 29, 2024 and sell it today you would lose (27.00) from holding China Railway Construction or give up 5.66% of portfolio value over 90 days.

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

China Railway Construction  vs.  Semiconductor Manufacturing El

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.

Semiconductor Manufacturing

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with China Railway and Semiconductor Manufacturing

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

The idea behind China Railway Construction and Semiconductor Manufacturing Electronics 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.