Correlation Between Dirui Industrial and China Citic

Can any of the company-specific risk be diversified away by investing in both Dirui Industrial and China Citic 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 Dirui Industrial and China Citic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dirui Industrial Co and China Citic Bank, you can compare the effects of market volatilities on Dirui Industrial and China Citic 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 Dirui Industrial with a short position of China Citic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dirui Industrial and China Citic.

Diversification Opportunities for Dirui Industrial and China Citic

0.86

Correlation Coefficient

Dirui Industrial  China Citic

Very poor diversification

The 3 months correlation between Dirui and China is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Dirui Industrial Co and China Citic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Citic Bank and Dirui Industrial 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 Dirui Industrial Co are associated (or correlated) with China Citic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Citic Bank has no effect on the direction of Dirui Industrial i.e., Dirui Industrial and China Citic go up and down completely randomly.

Pair Corralation between Dirui Industrial and China Citic

Assuming the 90 days trading horizon Dirui Industrial Co is expected to generate 2.04 times more return on investment than China Citic. However, Dirui Industrial is 2.04 times more volatile than China Citic Bank. It trades about 0.12 of its potential returns per unit of risk. China Citic Bank is currently generating about 0.2 per unit of risk. If you would invest  1,336  in Dirui Industrial Co on September 12, 2024 and sell it today you would earn a total of  376.00  from holding Dirui Industrial Co or generate 28.14% return on investment over 90 days.

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

Dirui Industrial Co  vs.  China Citic Bank

Dirui Industrial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dirui Industrial Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dirui Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

China Citic Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Citic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dirui Industrial and China Citic

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

The idea behind Dirui Industrial Co and China Citic Bank 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.