Correlation Between China Railway and IQIYI

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

Diversification Opportunities for China Railway and IQIYI

-0.38

Correlation Coefficient

China Railway  IQIYI

Very good diversification

The 3 months correlation between China and IQIYI is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and iQIYI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iQIYI Inc 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 IQIYI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iQIYI Inc has no effect on the direction of China Railway i.e., China Railway and IQIYI go up and down completely randomly.

Pair Corralation between China Railway and IQIYI

Assuming the 90 days horizon China Railway Group is expected to generate 0.88 times more return on investment than IQIYI. However, China Railway Group is 1.14 times less risky than IQIYI. It trades about 0.03 of its potential returns per unit of risk. iQIYI Inc is currently generating about -0.04 per unit of risk. If you would invest  46.00  in China Railway Group on December 4, 2024 and sell it today you would earn a total of  7.00  from holding China Railway Group or generate 15.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

China Railway Group  vs.  iQIYI Inc

China Railway Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iQIYI Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days iQIYI Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, IQIYI is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with China Railway and IQIYI

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

The idea behind China Railway Group and iQIYI Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.