Correlation Between Alstom SA and Guangshen Railway
Can any of the company-specific risk be diversified away by investing in both Alstom SA and Guangshen 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 Alstom SA and Guangshen Railway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alstom SA and Guangshen Railway, you can compare the effects of market volatilities on Alstom SA and Guangshen 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 Alstom SA with a short position of Guangshen Railway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alstom SA and Guangshen Railway.
Diversification Opportunities for Alstom SA and Guangshen Railway
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Alstom and Guangshen is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and Guangshen Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangshen Railway and Alstom SA 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 Alstom SA are associated (or correlated) with Guangshen Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangshen Railway has no effect on the direction of Alstom SA i.e., Alstom SA and Guangshen Railway go up and down completely randomly.
Pair Corralation between Alstom SA and Guangshen Railway
Assuming the 90 days horizon Alstom SA is expected to under-perform the Guangshen Railway. In addition to that, Alstom SA is 1.25 times more volatile than Guangshen Railway. It trades about -0.23 of its total potential returns per unit of risk. Guangshen Railway is currently generating about -0.22 per unit of volatility. If you would invest 28.00 in Guangshen Railway on November 2, 2024 and sell it today you would lose (3.00) from holding Guangshen Railway or give up 10.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Alstom SA vs. Guangshen Railway
Performance |
| Timeline |
| Alstom SA |
| Guangshen Railway |
Alstom SA and Guangshen Railway Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alstom SA and Guangshen Railway
The main advantage of trading using opposite Alstom SA and Guangshen Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alstom SA position performs unexpectedly, Guangshen 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 Guangshen Railway will offset losses from the drop in Guangshen Railway's long position.| Alstom SA vs. West Japan Railway | Alstom SA vs. Central Japan Railway | Alstom SA vs. LB Foster | Alstom SA vs. Norfolk Southern |
| Guangshen Railway vs. West Japan Railway | Guangshen Railway vs. Central Japan Railway | Guangshen Railway vs. LB Foster | Guangshen Railway vs. Norfolk Southern |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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