Correlation Between Kajima Corp and China Railway

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

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

Diversification Opportunities for Kajima Corp and China Railway

0.46

Correlation Coefficient

Kajima Corp  China Railway

Very weak diversification

The 3 months correlation between Kajima and China is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Kajima Corp ADR and China Railway Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Group and Kajima Corp 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 Kajima Corp ADR 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 Group has no effect on the direction of Kajima Corp i.e., Kajima Corp and China Railway go up and down completely randomly.

Pair Corralation between Kajima Corp and China Railway

Assuming the 90 days horizon Kajima Corp ADR is expected to generate 1.88 times more return on investment than China Railway. However, Kajima Corp is 1.88 times more volatile than China Railway Group. It trades about 0.08 of its potential returns per unit of risk. China Railway Group is currently generating about 0.05 per unit of risk. If you would invest  1,833  in Kajima Corp ADR on December 28, 2024 and sell it today you would earn a total of  309.00  from holding Kajima Corp ADR or generate 16.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Kajima Corp ADR  vs.  China Railway Group

Kajima Corp ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kajima Corp ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Kajima Corp showed solid returns over the last few months and may actually be approaching a breakup point.

China Railway Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Railway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Kajima Corp and China Railway

The main advantage of trading using opposite Kajima Corp and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kajima Corp 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 Kajima Corp ADR and China Railway Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.