Correlation Between China Overseas and BII Railway

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

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

Diversification Opportunities for China Overseas and BII Railway

0.46

Correlation Coefficient

China Overseas  BII Railway

Very weak diversification

The 3 months correlation between China and BII is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Overseas Land and BII Railway Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BII Railway Transpor and China Overseas 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 Overseas Land are associated (or correlated) with BII Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BII Railway Transpor has no effect on the direction of China Overseas i.e., China Overseas and BII Railway go up and down completely randomly.

Pair Corralation between China Overseas and BII Railway

Assuming the 90 days horizon China Overseas Land is expected to generate 1.1 times more return on investment than BII Railway. However, China Overseas is 1.1 times more volatile than BII Railway Transportation. It trades about 0.05 of its potential returns per unit of risk. BII Railway Transportation is currently generating about 0.01 per unit of risk. If you would invest  83.00  in China Overseas Land on October 5, 2024 and sell it today you would earn a total of  71.00  from holding China Overseas Land or generate 85.54% return on investment over 90 days.

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

China Overseas Land  vs.  BII Railway Transportation

China Overseas Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Overseas Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

BII Railway Transpor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BII Railway Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Overseas and BII Railway

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

The idea behind China Overseas Land and BII Railway Transportation 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.