Correlation Between CITIC Guoan and HeNan Splendor

Can any of the company-specific risk be diversified away by investing in both CITIC Guoan and HeNan Splendor 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 HeNan Splendor 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 HeNan Splendor Science, you can compare the effects of market volatilities on CITIC Guoan and HeNan Splendor 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 HeNan Splendor. Check out your portfolio center. Please also check ongoing floating volatility patterns of CITIC Guoan and HeNan Splendor.

Diversification Opportunities for CITIC Guoan and HeNan Splendor

0.47

Correlation Coefficient

CITIC Guoan  HeNan Splendor

Very weak diversification

The 3 months correlation between CITIC and HeNan is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Guoan Information and HeNan Splendor Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeNan Splendor Science 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 HeNan Splendor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeNan Splendor Science has no effect on the direction of CITIC Guoan i.e., CITIC Guoan and HeNan Splendor go up and down completely randomly.

Pair Corralation between CITIC Guoan and HeNan Splendor

Assuming the 90 days trading horizon CITIC Guoan Information is expected to under-perform the HeNan Splendor. But the stock apears to be less risky and, when comparing its historical volatility, CITIC Guoan Information is 1.16 times less risky than HeNan Splendor. The stock trades about -0.06 of its potential returns per unit of risk. The HeNan Splendor Science is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,007  in HeNan Splendor Science on December 24, 2024 and sell it today you would earn a total of  168.00  from holding HeNan Splendor Science or generate 16.68% return on investment over 90 days.

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

CITIC Guoan Information  vs.  HeNan Splendor Science

CITIC Guoan Information

Risk-Adjusted Performance

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 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.

HeNan Splendor Science

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeNan Splendor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CITIC Guoan and HeNan Splendor

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

The idea behind CITIC Guoan Information and HeNan Splendor Science 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.