Correlation Between Citic Guoan and China Satellite

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

Diversification Opportunities for Citic Guoan and China Satellite

0.86

Correlation Coefficient

Citic Guoan  China Satellite

Very poor diversification

The 3 months correlation between Citic and China is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and China Satellite Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Satellite Comm 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 China Satellite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Satellite Comm has no effect on the direction of Citic Guoan i.e., Citic Guoan and China Satellite go up and down completely randomly.

Pair Corralation between Citic Guoan and China Satellite

Assuming the 90 days trading horizon Citic Guoan Wine is expected to under-perform the China Satellite. But the stock apears to be less risky and, when comparing its historical volatility, Citic Guoan Wine is 1.4 times less risky than China Satellite. The stock trades about -0.12 of its potential returns per unit of risk. The China Satellite Communications is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,059  in China Satellite Communications on September 26, 2024 and sell it today you would earn a total of  87.00  from holding China Satellite Communications or generate 4.23% return on investment over 90 days.

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

Citic Guoan Wine  vs.  China Satellite Communications

Citic Guoan Wine

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Guoan Wine are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Citic Guoan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Satellite Comm

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Satellite Communications are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Satellite sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citic Guoan and China Satellite

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

The idea behind Citic Guoan Wine and China Satellite Communications 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.