Correlation Between BJs Restaurants and China Railway

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

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

Diversification Opportunities for BJs Restaurants and China Railway

-0.24

Correlation Coefficient

BJs Restaurants  China Railway

Very good diversification

The 3 months correlation between BJs and China is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants 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 BJs Restaurants 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 BJs Restaurants 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 BJs Restaurants i.e., BJs Restaurants and China Railway go up and down completely randomly.

Pair Corralation between BJs Restaurants and China Railway

Assuming the 90 days trading horizon BJs Restaurants is expected to under-perform the China Railway. But the stock apears to be less risky and, when comparing its historical volatility, BJs Restaurants is 1.04 times less risky than China Railway. The stock trades about -0.04 of its potential returns per unit of risk. The China Railway Group is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  46.00  in China Railway Group on October 26, 2024 and sell it today you would lose (1.00) from holding China Railway Group or give up 2.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

BJs Restaurants  vs.  China Railway Group

BJs Restaurants

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Railway Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BJs Restaurants and China Railway

The main advantage of trading using opposite BJs Restaurants and China Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Restaurants 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 BJs Restaurants 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.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.