Correlation Between CRRC and Union Pacific

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

By analyzing existing cross correlation between CRRC Limited and Union Pacific, you can compare the effects of market volatilities on CRRC and Union Pacific 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 CRRC with a short position of Union Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of CRRC and Union Pacific.

Diversification Opportunities for CRRC and Union Pacific

-0.09

Correlation Coefficient

CRRC  Union Pacific

Good diversification

The 3 months correlation between CRRC and Union is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding CRRC Limited and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific and CRRC 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 CRRC Limited are associated (or correlated) with Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of CRRC i.e., CRRC and Union Pacific go up and down completely randomly.

Pair Corralation between CRRC and Union Pacific

Assuming the 90 days horizon CRRC Limited is expected to generate 3.33 times more return on investment than Union Pacific. However, CRRC is 3.33 times more volatile than Union Pacific. It trades about 0.11 of its potential returns per unit of risk. Union Pacific is currently generating about 0.02 per unit of risk. If you would invest  24.00  in CRRC Limited on October 5, 2024 and sell it today you would earn a total of  37.00  from holding CRRC Limited or generate 154.17% return on investment over 90 days.

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

CRRC Limited  vs.  Union Pacific

CRRC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CRRC Limited 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.

Union Pacific

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Union Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CRRC and Union Pacific

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

The idea behind CRRC Limited and Union Pacific 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.