Correlation Between Zhejiang Construction and CITIC Securities

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

By analyzing existing cross correlation between Zhejiang Construction Investment and CITIC Securities Co, you can compare the effects of market volatilities on Zhejiang Construction and CITIC Securities 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 Zhejiang Construction with a short position of CITIC Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Construction and CITIC Securities.

Diversification Opportunities for Zhejiang Construction and CITIC Securities

0.7

Correlation Coefficient

Zhejiang Construction  CITIC Securities

Poor diversification

The 3 months correlation between Zhejiang and CITIC is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and CITIC Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Securities and Zhejiang Construction 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 Zhejiang Construction Investment are associated (or correlated) with CITIC Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Securities has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and CITIC Securities go up and down completely randomly.

Pair Corralation between Zhejiang Construction and CITIC Securities

Assuming the 90 days trading horizon Zhejiang Construction Investment is expected to generate 1.28 times more return on investment than CITIC Securities. However, Zhejiang Construction is 1.28 times more volatile than CITIC Securities Co. It trades about -0.03 of its potential returns per unit of risk. CITIC Securities Co is currently generating about -0.1 per unit of risk. If you would invest  910.00  in Zhejiang Construction Investment on December 25, 2024 and sell it today you would lose (42.00) from holding Zhejiang Construction Investment or give up 4.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Zhejiang Construction Investme  vs.  CITIC Securities Co

Zhejiang Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zhejiang Construction Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zhejiang Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CITIC Securities

Risk-Adjusted Performance

Very Weak

Over the last 90 days CITIC Securities Co 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 Zhejiang Construction and CITIC Securities

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

The idea behind Zhejiang Construction Investment and CITIC Securities Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.