Correlation Between Citic Guoan and Shanghai Rongtai

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

Diversification Opportunities for Citic Guoan and Shanghai Rongtai

0.7

Correlation Coefficient

Citic Guoan  Shanghai Rongtai

Poor diversification

The 3 months correlation between Citic and Shanghai is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Citic Guoan Wine and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health 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 Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of Citic Guoan i.e., Citic Guoan and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between Citic Guoan and Shanghai Rongtai

Assuming the 90 days trading horizon Citic Guoan Wine is expected to under-perform the Shanghai Rongtai. In addition to that, Citic Guoan is 1.22 times more volatile than Shanghai Rongtai Health. It trades about -0.06 of its total potential returns per unit of risk. Shanghai Rongtai Health is currently generating about -0.05 per unit of volatility. If you would invest  1,534  in Shanghai Rongtai Health on October 6, 2024 and sell it today you would lose (153.00) from holding Shanghai Rongtai Health or give up 9.97% of portfolio value over 90 days.

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

Citic Guoan Wine  vs.  Shanghai Rongtai Health

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.

Shanghai Rongtai Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Rongtai Health 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 Shanghai Rongtai

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

The idea behind Citic Guoan Wine and Shanghai Rongtai Health 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.