Correlation Between Elmos Semiconductor and China Railway

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

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

Diversification Opportunities for Elmos Semiconductor and China Railway

-0.26

Correlation Coefficient

Elmos Semiconductor  China Railway

Very good diversification

The 3 months correlation between Elmos and China is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Elmos Semiconductor SE 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 Elmos Semiconductor 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 Elmos Semiconductor SE 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 Elmos Semiconductor i.e., Elmos Semiconductor and China Railway go up and down completely randomly.

Pair Corralation between Elmos Semiconductor and China Railway

Assuming the 90 days trading horizon Elmos Semiconductor SE is expected to generate 1.32 times more return on investment than China Railway. However, Elmos Semiconductor is 1.32 times more volatile than China Railway Signal. It trades about 0.01 of its potential returns per unit of risk. China Railway Signal is currently generating about 0.01 per unit of risk. If you would invest  6,660  in Elmos Semiconductor SE on December 21, 2024 and sell it today you would lose (50.00) from holding Elmos Semiconductor SE or give up 0.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Elmos Semiconductor SE  vs.  China Railway Signal

Elmos Semiconductor

Risk-Adjusted Performance

Weak

Over the last 90 days Elmos Semiconductor SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Elmos Semiconductor is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

China Railway Signal

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Railway Signal 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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Elmos Semiconductor and China Railway

The main advantage of trading using opposite Elmos Semiconductor and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elmos Semiconductor 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 Elmos Semiconductor SE 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.