Correlation Between CITIC Guoan and Shenwu Energy

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

By analyzing existing cross correlation between CITIC Guoan Information and Shenwu Energy Saving, you can compare the effects of market volatilities on CITIC Guoan and Shenwu Energy 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 CITIC Guoan with a short position of Shenwu Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of CITIC Guoan and Shenwu Energy.

Diversification Opportunities for CITIC Guoan and Shenwu Energy

0.64

Correlation Coefficient

CITIC Guoan  Shenwu Energy

Poor diversification

The 3 months correlation between CITIC and Shenwu is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Guoan Information and Shenwu Energy Saving in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenwu Energy Saving and CITIC Guoan 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 CITIC Guoan Information are associated (or correlated) with Shenwu Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenwu Energy Saving has no effect on the direction of CITIC Guoan i.e., CITIC Guoan and Shenwu Energy go up and down completely randomly.

Pair Corralation between CITIC Guoan and Shenwu Energy

Assuming the 90 days trading horizon CITIC Guoan Information is expected to under-perform the Shenwu Energy. But the stock apears to be less risky and, when comparing its historical volatility, CITIC Guoan Information is 1.26 times less risky than Shenwu Energy. The stock trades about -0.07 of its potential returns per unit of risk. The Shenwu Energy Saving is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  417.00  in Shenwu Energy Saving on October 26, 2024 and sell it today you would lose (52.00) from holding Shenwu Energy Saving or give up 12.47% of portfolio value over 90 days.

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

CITIC Guoan Information  vs.  Shenwu Energy Saving

CITIC Guoan Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITIC Guoan Information has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shenwu Energy Saving

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenwu Energy Saving has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with CITIC Guoan and Shenwu Energy

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

The idea behind CITIC Guoan Information and Shenwu Energy Saving 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.