Correlation Between Guangshen Railway and MTR Corp

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

By analyzing existing cross correlation between Guangshen Railway and MTR Corp Ltd, you can compare the effects of market volatilities on Guangshen Railway and MTR Corp 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 Guangshen Railway with a short position of MTR Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangshen Railway and MTR Corp.

Diversification Opportunities for Guangshen Railway and MTR Corp

0.01

Correlation Coefficient

Guangshen Railway  MTR Corp

Significant diversification

The 3 months correlation between Guangshen and MTR is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Guangshen Railway and MTR Corp Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Corp and Guangshen 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 Guangshen Railway are associated (or correlated) with MTR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Corp has no effect on the direction of Guangshen Railway i.e., Guangshen Railway and MTR Corp go up and down completely randomly.

Pair Corralation between Guangshen Railway and MTR Corp

Assuming the 90 days horizon Guangshen Railway is expected to generate 1.31 times less return on investment than MTR Corp. In addition to that, Guangshen Railway is 1.32 times more volatile than MTR Corp Ltd. It trades about 0.03 of its total potential returns per unit of risk. MTR Corp Ltd is currently generating about 0.06 per unit of volatility. If you would invest  1,065  in MTR Corp Ltd on December 29, 2024 and sell it today you would earn a total of  87.00  from holding MTR Corp Ltd or generate 8.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Guangshen Railway  vs.  MTR Corp Ltd

Guangshen Railway

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangshen Railway are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Guangshen Railway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MTR Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Corp Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, MTR Corp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Guangshen Railway and MTR Corp

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

The idea behind Guangshen Railway and MTR Corp Ltd 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.