Correlation Between Dupont De and China Railway

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

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

Diversification Opportunities for Dupont De and China Railway

0.03

Correlation Coefficient

Dupont De  China Railway

Significant diversification

The 3 months correlation between Dupont and China is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Dupont De Nemours and China Railway Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Materials and Dupont De 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 Dupont De Nemours 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 Materials has no effect on the direction of Dupont De i.e., Dupont De and China Railway go up and down completely randomly.

Pair Corralation between Dupont De and China Railway

Allowing for the 90-day total investment horizon Dupont De Nemours is expected to generate 0.87 times more return on investment than China Railway. However, Dupont De Nemours is 1.15 times less risky than China Railway. It trades about 0.05 of its potential returns per unit of risk. China Railway Materials is currently generating about 0.04 per unit of risk. If you would invest  7,002  in Dupont De Nemours on September 4, 2024 and sell it today you would earn a total of  1,292  from holding Dupont De Nemours or generate 18.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.95%
Values	Daily Returns

Dupont De Nemours  vs.  China Railway Materials

Dupont De Nemours

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dupont De Nemours are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Dupont De is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

China Railway Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dupont De and China Railway

The main advantage of trading using opposite Dupont De and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dupont De 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 Dupont De Nemours and China Railway Materials 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.