Correlation Between Arcadis NV and China Railway

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

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

Diversification Opportunities for Arcadis NV and China Railway

-0.39

Correlation Coefficient

Arcadis NV  China Railway

Very good diversification

The 3 months correlation between Arcadis and China is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Arcadis NV and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and Arcadis NV 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 Arcadis NV 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 Group has no effect on the direction of Arcadis NV i.e., Arcadis NV and China Railway go up and down completely randomly.

Pair Corralation between Arcadis NV and China Railway

Assuming the 90 days horizon Arcadis NV is expected to under-perform the China Railway. But the pink sheet apears to be less risky and, when comparing its historical volatility, Arcadis NV is 6.3 times less risky than China Railway. The pink sheet trades about -0.16 of its potential returns per unit of risk. The China Railway Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  42.00  in China Railway Group on September 12, 2024 and sell it today you would earn a total of  8.00  from holding China Railway Group or generate 19.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Arcadis NV  vs.  China Railway Group

Arcadis NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arcadis NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

China Railway Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arcadis NV and China Railway

The main advantage of trading using opposite Arcadis NV and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arcadis NV 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 Arcadis NV and China Railway Group 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.