Correlation Between China Railway and GOODTECH ASA

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

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

Diversification Opportunities for China Railway and GOODTECH ASA

0.01

Correlation Coefficient

China Railway  GOODTECH ASA

Significant diversification

The 3 months correlation between China and GOODTECH is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and GOODTECH ASA A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GOODTECH ASA A and China Railway 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 China Railway Group are associated (or correlated) with GOODTECH ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GOODTECH ASA A has no effect on the direction of China Railway i.e., China Railway and GOODTECH ASA go up and down completely randomly.

Pair Corralation between China Railway and GOODTECH ASA

Assuming the 90 days horizon China Railway is expected to generate 2.59 times less return on investment than GOODTECH ASA. In addition to that, China Railway is 1.32 times more volatile than GOODTECH ASA A. It trades about 0.1 of its total potential returns per unit of risk. GOODTECH ASA A is currently generating about 0.35 per unit of volatility. If you would invest  77.00  in GOODTECH ASA A on September 23, 2024 and sell it today you would earn a total of  10.00  from holding GOODTECH ASA A or generate 12.99% return on investment over 90 days.

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

China Railway Group  vs.  GOODTECH ASA A

China Railway Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 8 (%) 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.

GOODTECH ASA A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GOODTECH ASA A 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.

Pair Trading with China Railway and GOODTECH ASA

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

The idea behind China Railway Group and GOODTECH ASA A 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.