Correlation Between China Railway and Aerovate Therapeutics

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

Diversification Opportunities for China Railway and Aerovate Therapeutics

0.33

Correlation Coefficient

China Railway  Aerovate Therapeutics

Weak diversification

The 3 months correlation between China and Aerovate is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics 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 Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of China Railway i.e., China Railway and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between China Railway and Aerovate Therapeutics

Assuming the 90 days horizon China Railway is expected to generate 1.34 times less return on investment than Aerovate Therapeutics. In addition to that, China Railway is 1.62 times more volatile than Aerovate Therapeutics. It trades about 0.07 of its total potential returns per unit of risk. Aerovate Therapeutics is currently generating about 0.16 per unit of volatility. If you would invest  190.00  in Aerovate Therapeutics on September 13, 2024 and sell it today you would earn a total of  70.00  from holding Aerovate Therapeutics or generate 36.84% return on investment over 90 days.

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

China Railway Group  vs.  Aerovate Therapeutics

China Railway Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 5 (%) 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.

Aerovate Therapeutics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and Aerovate Therapeutics

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

The idea behind China Railway Group and Aerovate Therapeutics 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.