Correlation Between Semiconductor Manufacturing and China Railway

Can any of the company-specific risk be diversified away by investing in both Semiconductor Manufacturing and China Railway 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 Semiconductor Manufacturing and China Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Semiconductor Manufacturing Electronics and China Railway Construction, you can compare the effects of market volatilities on Semiconductor Manufacturing and China Railway 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 Semiconductor Manufacturing with a short position of China Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Semiconductor Manufacturing and China Railway.

Diversification Opportunities for Semiconductor Manufacturing and China Railway

0.88

Correlation Coefficient

Semiconductor Manufacturing  China Railway

Very poor diversification

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

Pair Corralation between Semiconductor Manufacturing and China Railway

Assuming the 90 days trading horizon Semiconductor Manufacturing is expected to generate 5.86 times less return on investment than China Railway. In addition to that, Semiconductor Manufacturing is 1.17 times more volatile than China Railway Construction. It trades about 0.0 of its total potential returns per unit of risk. China Railway Construction is currently generating about 0.02 per unit of volatility. If you would invest  395.00  in China Railway Construction on September 29, 2024 and sell it today you would earn a total of  55.00  from holding China Railway Construction or generate 13.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	87.01%
Values	Daily Returns

Semiconductor Manufacturing El  vs.  China Railway Construction

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.

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.

Pair Trading with Semiconductor Manufacturing and China Railway

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

The idea behind Semiconductor Manufacturing Electronics and China Railway Construction 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.