Correlation Between Shandong Iron and China Citic

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

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

Diversification Opportunities for Shandong Iron and China Citic

0.79

Correlation Coefficient

Shandong Iron  China Citic

Poor diversification

The 3 months correlation between Shandong and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Iron and 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 Shandong Iron 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 Shandong Iron and 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 Shandong Iron i.e., Shandong Iron and China Citic go up and down completely randomly.

Pair Corralation between Shandong Iron and China Citic

Assuming the 90 days trading horizon Shandong Iron and is expected to generate 1.45 times more return on investment than China Citic. However, Shandong Iron is 1.45 times more volatile than China Citic Bank. It trades about 0.2 of its potential returns per unit of risk. China Citic Bank is currently generating about 0.15 per unit of risk. If you would invest  121.00  in Shandong Iron and on September 14, 2024 and sell it today you would earn a total of  46.00  from holding Shandong Iron and or generate 38.02% return on investment over 90 days.

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

Shandong Iron and  vs.  China Citic Bank

Shandong Iron

Risk-Adjusted Performance

15 of 100

Solid

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

China Citic Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 11 (%) 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 Shandong Iron and China Citic

The main advantage of trading using opposite Shandong Iron and China Citic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong Iron 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 Shandong Iron and 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.