Correlation Between Datang HuaYin and Citic Guoan

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

By analyzing existing cross correlation between Datang HuaYin Electric and Citic Guoan Wine, you can compare the effects of market volatilities on Datang HuaYin and Citic Guoan 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 Datang HuaYin with a short position of Citic Guoan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datang HuaYin and Citic Guoan.

Diversification Opportunities for Datang HuaYin and Citic Guoan

0.82

Correlation Coefficient

Datang HuaYin  Citic Guoan

Very poor diversification

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

Pair Corralation between Datang HuaYin and Citic Guoan

Assuming the 90 days trading horizon Datang HuaYin Electric is expected to generate 0.92 times more return on investment than Citic Guoan. However, Datang HuaYin Electric is 1.08 times less risky than Citic Guoan. It trades about -0.21 of its potential returns per unit of risk. Citic Guoan Wine is currently generating about -0.33 per unit of risk. 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

Datang HuaYin Electric  vs.  Citic Guoan Wine

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.

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.

Pair Trading with Datang HuaYin and Citic Guoan

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

The idea behind Datang HuaYin Electric and Citic Guoan Wine 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.