Correlation Between Citic Guoan and Chengdu Kanghua

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

By analyzing existing cross correlation between Citic Guoan Wine and Chengdu Kanghua Biological, you can compare the effects of market volatilities on Citic Guoan and Chengdu Kanghua 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 Chengdu Kanghua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citic Guoan and Chengdu Kanghua.

Diversification Opportunities for Citic Guoan and Chengdu Kanghua

0.02

Correlation Coefficient

Citic Guoan  Chengdu Kanghua

Significant diversification

The 3 months correlation between Citic and Chengdu is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol 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 Wine are associated (or correlated) with Chengdu Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of Citic Guoan i.e., Citic Guoan and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between Citic Guoan and Chengdu Kanghua

Assuming the 90 days trading horizon Citic Guoan Wine is expected to generate 1.03 times more return on investment than Chengdu Kanghua. However, Citic Guoan is 1.03 times more volatile than Chengdu Kanghua Biological. It trades about -0.04 of its potential returns per unit of risk. Chengdu Kanghua Biological is currently generating about -0.2 per unit of risk. If you would invest  582.00  in Citic Guoan Wine on October 5, 2024 and sell it today you would lose (56.00) from holding Citic Guoan Wine or give up 9.62% of portfolio value over 90 days.

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

Citic Guoan Wine  vs.  Chengdu Kanghua Biological

Citic Guoan Wine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Citic Guoan Wine 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.

Chengdu Kanghua Biol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chengdu Kanghua Biological has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Citic Guoan and Chengdu Kanghua

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

The idea behind Citic Guoan Wine and Chengdu Kanghua Biological 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.