Correlation Between Citic Guoan and Datang HuaYin

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

Diversification Opportunities for Citic Guoan and Datang HuaYin

0.82

Correlation Coefficient

Citic Guoan  Datang HuaYin

Very poor diversification

The 3 months correlation between Citic and Datang is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and Datang HuaYin Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datang HuaYin Electric 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 Datang HuaYin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datang HuaYin Electric has no effect on the direction of Citic Guoan i.e., Citic Guoan and Datang HuaYin go up and down completely randomly.

Pair Corralation between Citic Guoan and Datang HuaYin

Assuming the 90 days trading horizon Citic Guoan Wine is expected to under-perform the Datang HuaYin. In addition to that, Citic Guoan is 1.08 times more volatile than Datang HuaYin Electric. It trades about -0.33 of its total potential returns per unit of risk. Datang HuaYin Electric is currently generating about -0.21 per unit of volatility. If you would invest  346.00  in Datang HuaYin Electric on October 6, 2024 and sell it today you would lose (41.00) from holding Datang HuaYin Electric or give up 11.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Citic Guoan Wine  vs.  Datang HuaYin Electric

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.

Datang HuaYin Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Datang HuaYin Electric 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.

Pair Trading with Citic Guoan and Datang HuaYin

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

The idea behind Citic Guoan Wine and Datang HuaYin Electric 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.