Correlation Between Tianjin Hi-Tech and China Citic

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

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

Diversification Opportunities for Tianjin Hi-Tech and China Citic

0.18

Correlation Coefficient

Tianjin Hi-Tech  China Citic

Average diversification

The 3 months correlation between Tianjin and China is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Hi Tech Development 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 Tianjin Hi-Tech 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 Tianjin Hi Tech Development 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 Tianjin Hi-Tech i.e., Tianjin Hi-Tech and China Citic go up and down completely randomly.

Pair Corralation between Tianjin Hi-Tech and China Citic

Assuming the 90 days trading horizon Tianjin Hi Tech Development is expected to generate 1.55 times more return on investment than China Citic. However, Tianjin Hi-Tech is 1.55 times more volatile than China Citic Bank. It trades about 0.06 of its potential returns per unit of risk. China Citic Bank is currently generating about 0.06 per unit of risk. If you would invest  282.00  in Tianjin Hi Tech Development on December 27, 2024 and sell it today you would earn a total of  18.00  from holding Tianjin Hi Tech Development or generate 6.38% return on investment over 90 days.

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

Tianjin Hi Tech Development  vs.  China Citic Bank

Tianjin Hi Tech

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Hi Tech Development are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Hi-Tech may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Citic Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Citic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tianjin Hi-Tech and China Citic

The main advantage of trading using opposite Tianjin Hi-Tech and China Citic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tianjin Hi-Tech 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 Tianjin Hi Tech Development 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.