Correlation Between China Railway and EMCOR

Can any of the company-specific risk be diversified away by investing in both China Railway and EMCOR 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 EMCOR 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 EMCOR Group, you can compare the effects of market volatilities on China Railway and EMCOR 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 EMCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and EMCOR.

Diversification Opportunities for China Railway and EMCOR

0.03

Correlation Coefficient

China Railway  EMCOR

Significant diversification

The 3 months correlation between China and EMCOR is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group 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 EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of China Railway i.e., China Railway and EMCOR go up and down completely randomly.

Pair Corralation between China Railway and EMCOR

Assuming the 90 days horizon China Railway Group is expected to generate 2.57 times more return on investment than EMCOR. However, China Railway is 2.57 times more volatile than EMCOR Group. It trades about 0.08 of its potential returns per unit of risk. EMCOR Group is currently generating about 0.15 per unit of risk. If you would invest  20.00  in China Railway Group on September 24, 2024 and sell it today you would earn a total of  27.00  from holding China Railway Group or generate 135.0% 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.  EMCOR Group

China Railway Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 7 (%) 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.

EMCOR Group

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with China Railway and EMCOR

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

The idea behind China Railway Group and EMCOR 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.