Correlation Between China Railway and Business Online
Can any of the company-specific risk be diversified away by investing in both China Railway and Business Online 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 Business Online into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Railway Signal and Business Online PCL, you can compare the effects of market volatilities on China Railway and Business Online 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 Business Online. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Business Online.
Diversification Opportunities for China Railway and Business Online
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between China and Business is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Signal and Business Online PCL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business Online PCL 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 Signal are associated (or correlated) with Business Online. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business Online PCL has no effect on the direction of China Railway i.e., China Railway and Business Online go up and down completely randomly.
Pair Corralation between China Railway and Business Online
Assuming the 90 days horizon China Railway Signal is expected to generate 4.46 times more return on investment than Business Online. However, China Railway is 4.46 times more volatile than Business Online PCL. It trades about 0.08 of its potential returns per unit of risk. Business Online PCL is currently generating about -0.06 per unit of risk. If you would invest 6.45 in China Railway Signal on November 27, 2024 and sell it today you would earn a total of 33.55 from holding China Railway Signal or generate 520.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.62% |
| Values | Daily Returns |
China Railway Signal vs. Business Online PCL
Performance |
| Timeline |
| China Railway Signal |
| Business Online PCL |
China Railway and Business Online Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Railway and Business Online
The main advantage of trading using opposite China Railway and Business Online positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway position performs unexpectedly, Business Online 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 Business Online will offset losses from the drop in Business Online's long position.| China Railway vs. Beta Systems Software | China Railway vs. China Datang | China Railway vs. Alfa Financial Software | China Railway vs. Cass Information Systems |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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