Correlation Between China Railway and SoundHound

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

Diversification Opportunities for China Railway and SoundHound

-0.24

Correlation Coefficient

China Railway  SoundHound

Very good diversification

The 3 months correlation between China and SoundHound is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and SoundHound AI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoundHound AI 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 SoundHound. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoundHound AI has no effect on the direction of China Railway i.e., China Railway and SoundHound go up and down completely randomly.

Pair Corralation between China Railway and SoundHound

Assuming the 90 days horizon China Railway Group is expected to generate 0.16 times more return on investment than SoundHound. However, China Railway Group is 6.24 times less risky than SoundHound. It trades about -0.13 of its potential returns per unit of risk. SoundHound AI is currently generating about -0.15 per unit of risk. If you would invest  50.00  in China Railway Group on October 20, 2024 and sell it today you would lose (2.00) from holding China Railway Group or give up 4.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

China Railway Group  vs.  SoundHound AI

China Railway Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Railway Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Railway is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SoundHound AI

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SoundHound AI are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, SoundHound displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Railway and SoundHound

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

The idea behind China Railway Group and SoundHound AI 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.