Correlation Between Dr Peng and China Citic

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

By analyzing existing cross correlation between Dr Peng Telecom and China Citic Bank, you can compare the effects of market volatilities on Dr Peng and China Citic 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 Dr Peng with a short position of China Citic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dr Peng and China Citic.

Diversification Opportunities for Dr Peng and China Citic

0.32

Correlation Coefficient

Dr Peng  China Citic

Weak diversification

The 3 months correlation between 600804 and China is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Dr Peng Telecom and China Citic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Citic Bank and Dr Peng 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 Dr Peng Telecom are associated (or correlated) with China Citic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Citic Bank has no effect on the direction of Dr Peng i.e., Dr Peng and China Citic go up and down completely randomly.

Pair Corralation between Dr Peng and China Citic

Assuming the 90 days trading horizon Dr Peng Telecom is expected to generate 2.09 times more return on investment than China Citic. However, Dr Peng is 2.09 times more volatile than China Citic Bank. It trades about 0.1 of its potential returns per unit of risk. China Citic Bank is currently generating about 0.02 per unit of risk. If you would invest  118.00  in Dr Peng Telecom on September 29, 2024 and sell it today you would earn a total of  60.00  from holding Dr Peng Telecom or generate 50.85% return on investment over 90 days.

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

Dr Peng Telecom  vs.  China Citic Bank

Dr Peng Telecom

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dr Peng Telecom are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dr Peng sustained solid returns over the last few months and may actually be approaching a breakup point.

China Citic Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Citic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Citic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dr Peng and China Citic

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

The idea behind Dr Peng Telecom and China Citic Bank 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.