Correlation Between Dazhong Transportation and Beijing Shanghai

Can any of the company-specific risk be diversified away by investing in both Dazhong Transportation and Beijing Shanghai 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 Dazhong Transportation and Beijing Shanghai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dazhong Transportation Group and Beijing Shanghai High Speed, you can compare the effects of market volatilities on Dazhong Transportation and Beijing Shanghai 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 Dazhong Transportation with a short position of Beijing Shanghai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dazhong Transportation and Beijing Shanghai.

Diversification Opportunities for Dazhong Transportation and Beijing Shanghai

0.5

Correlation Coefficient

Dazhong Transportation  Beijing Shanghai

Very weak diversification

The 3 months correlation between Dazhong and Beijing is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dazhong Transportation Group and Beijing Shanghai High Speed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Shanghai High and Dazhong Transportation 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 Dazhong Transportation Group are associated (or correlated) with Beijing Shanghai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Shanghai High has no effect on the direction of Dazhong Transportation i.e., Dazhong Transportation and Beijing Shanghai go up and down completely randomly.

Pair Corralation between Dazhong Transportation and Beijing Shanghai

Assuming the 90 days trading horizon Dazhong Transportation Group is expected to generate 1.45 times more return on investment than Beijing Shanghai. However, Dazhong Transportation is 1.45 times more volatile than Beijing Shanghai High Speed. It trades about 0.18 of its potential returns per unit of risk. Beijing Shanghai High Speed is currently generating about 0.11 per unit of risk. If you would invest  18.00  in Dazhong Transportation Group on September 22, 2024 and sell it today you would earn a total of  6.00  from holding Dazhong Transportation Group or generate 33.33% return on investment over 90 days.

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

Dazhong Transportation Group  vs.  Beijing Shanghai High Speed

Dazhong Transportation

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dazhong Transportation Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dazhong Transportation sustained solid returns over the last few months and may actually be approaching a breakup point.

Beijing Shanghai High

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Shanghai High Speed are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Shanghai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dazhong Transportation and Beijing Shanghai

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

The idea behind Dazhong Transportation Group and Beijing Shanghai High Speed 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.