Correlation Between Keisei Electric and CRRC

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

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

Diversification Opportunities for Keisei Electric and CRRC

-0.15

Correlation Coefficient

Keisei Electric  CRRC

Good diversification

The 3 months correlation between Keisei and CRRC is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Keisei Electric Railway and CRRC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRRC Limited and Keisei Electric 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 Keisei Electric Railway are associated (or correlated) with CRRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRRC Limited has no effect on the direction of Keisei Electric i.e., Keisei Electric and CRRC go up and down completely randomly.

Pair Corralation between Keisei Electric and CRRC

Assuming the 90 days horizon Keisei Electric Railway is expected to generate 67.19 times more return on investment than CRRC. However, Keisei Electric is 67.19 times more volatile than CRRC Limited. It trades about 0.11 of its potential returns per unit of risk. CRRC Limited is currently generating about -0.15 per unit of risk. If you would invest  2,320  in Keisei Electric Railway on September 26, 2024 and sell it today you would earn a total of  220.00  from holding Keisei Electric Railway or generate 9.48% return on investment over 90 days.

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

Keisei Electric Railway  vs.  CRRC Limited

Keisei Electric Railway

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Keisei Electric Railway are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Keisei Electric reported solid returns over the last few months and may actually be approaching a breakup point.

CRRC Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CRRC Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CRRC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Keisei Electric and CRRC

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

The idea behind Keisei Electric Railway and CRRC Limited 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.