Correlation Between Citic Guoan and Hengerda New

Can any of the company-specific risk be diversified away by investing in both Citic Guoan and Hengerda New 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 Hengerda New 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 Hengerda New Materials, you can compare the effects of market volatilities on Citic Guoan and Hengerda New 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 Hengerda New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citic Guoan and Hengerda New.

Diversification Opportunities for Citic Guoan and Hengerda New

0.88

Correlation Coefficient

Citic Guoan  Hengerda New

Very poor diversification

The 3 months correlation between Citic and Hengerda is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and Hengerda New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengerda New Materials 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 Hengerda New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengerda New Materials has no effect on the direction of Citic Guoan i.e., Citic Guoan and Hengerda New go up and down completely randomly.

Pair Corralation between Citic Guoan and Hengerda New

Assuming the 90 days trading horizon Citic Guoan Wine is expected to under-perform the Hengerda New. But the stock apears to be less risky and, when comparing its historical volatility, Citic Guoan Wine is 1.21 times less risky than Hengerda New. The stock trades about -0.02 of its potential returns per unit of risk. The Hengerda New Materials is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,118  in Hengerda New Materials on September 20, 2024 and sell it today you would lose (270.00) from holding Hengerda New Materials or give up 8.66% of portfolio value over 90 days.

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

Citic Guoan Wine  vs.  Hengerda New Materials

Citic Guoan Wine

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Guoan Wine are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Citic Guoan sustained solid returns over the last few months and may actually be approaching a breakup point.

Hengerda New Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengerda New Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengerda New sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citic Guoan and Hengerda New

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

The idea behind Citic Guoan Wine and Hengerda New Materials 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.