Correlation Between Canadian National and China Railway

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Can any of the company-specific risk be diversified away by investing in both Canadian National and China 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 Canadian National and China Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Canadian National Railway and China Railway Signal, you can compare the effects of market volatilities on Canadian National and China 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 Canadian National with a short position of China Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian National and China Railway.

Diversification Opportunities for Canadian National and China Railway

-0.54
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Canadian and China is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Canadian National Railway and China Railway Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Signal and Canadian National 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 Canadian National Railway are associated (or correlated) with China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Signal has no effect on the direction of Canadian National i.e., Canadian National and China Railway go up and down completely randomly.

Pair Corralation between Canadian National and China Railway

Assuming the 90 days horizon Canadian National Railway is expected to under-perform the China Railway. But the stock apears to be less risky and, when comparing its historical volatility, Canadian National Railway is 1.95 times less risky than China Railway. The stock trades about -0.04 of its potential returns per unit of risk. The China Railway Signal is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  34.00  in China Railway Signal on October 22, 2024 and sell it today you would earn a total of  4.00  from holding China Railway Signal or generate 11.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Canadian National Railway  vs.  China Railway Signal

 Performance 
       Timeline  
Canadian National Railway 

Risk-Adjusted Performance

0 of 100

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

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Signal are ranked lower than 6 (%) 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.

Canadian National and China Railway Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Canadian National and China Railway

The main advantage of trading using opposite Canadian National and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian National position performs unexpectedly, China 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 China Railway will offset losses from the drop in China Railway's long position.
The idea behind Canadian National Railway and China Railway Signal 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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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