Correlation Between China Railway and China State
Can any of the company-specific risk be diversified away by investing in both China Railway and China State 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 China Railway and China State into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Railway Group and China State Construction, you can compare the effects of market volatilities on China Railway and China State 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 China Railway with a short position of China State. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and China State.
Diversification Opportunities for China Railway and China State
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between China and China is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and China State Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China State Construction and China 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 China Railway Group are associated (or correlated) with China State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China State Construction has no effect on the direction of China Railway i.e., China Railway and China State go up and down completely randomly.
Pair Corralation between China Railway and China State
Assuming the 90 days horizon China Railway Group is expected to under-perform the China State. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Railway Group is 1.82 times less risky than China State. The pink sheet trades about -0.14 of its potential returns per unit of risk. The China State Construction is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 125.00 in China State Construction on September 13, 2024 and sell it today you would lose (20.00) from holding China State Construction or give up 16.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Railway Group vs. China State Construction
Performance |
| Timeline |
| China Railway Group |
| China State Construction |
China Railway and China State Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Railway and China State
The main advantage of trading using opposite China Railway and China State positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway position performs unexpectedly, China State 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 State will offset losses from the drop in China State's long position.| China Railway vs. Arcadis NV | China Railway vs. VINCI SA | China Railway vs. Skanska AB ser | China Railway vs. Digital Locations |
| China State vs. Kenon Holdings | China State vs. Vistra Energy Corp | China State vs. CenterPoint Energy | China State vs. Corporacion America Airports |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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