Correlation Between CAREER EDUCATION and China Railway

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

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

Diversification Opportunities for CAREER EDUCATION and China Railway

0.58

Correlation Coefficient

CAREER EDUCATION  China Railway

Very weak diversification

The 3 months correlation between CAREER and China is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding CAREER EDUCATION and China Railway Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Signal and CAREER EDUCATION 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 CAREER EDUCATION 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 Signal has no effect on the direction of CAREER EDUCATION i.e., CAREER EDUCATION and China Railway go up and down completely randomly.

Pair Corralation between CAREER EDUCATION and China Railway

Assuming the 90 days trading horizon CAREER EDUCATION is expected to generate 1.1 times more return on investment than China Railway. However, CAREER EDUCATION is 1.1 times more volatile than China Railway Signal. It trades about 0.21 of its potential returns per unit of risk. China Railway Signal is currently generating about 0.11 per unit of risk. If you would invest  1,940  in CAREER EDUCATION on October 25, 2024 and sell it today you would earn a total of  720.00  from holding CAREER EDUCATION or generate 37.11% return on investment over 90 days.

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

CAREER EDUCATION  vs.  China Railway Signal

CAREER EDUCATION

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CAREER EDUCATION are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CAREER EDUCATION exhibited solid returns over the last few months and may actually be approaching a breakup point.

China Railway Signal

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Signal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China Railway reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAREER EDUCATION and China Railway

The main advantage of trading using opposite CAREER EDUCATION and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAREER EDUCATION 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 CAREER EDUCATION and China Railway Signal 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.

Check out your portfolio center.

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.