Correlation Between CITIC Metal and Digital China

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

By analyzing existing cross correlation between CITIC Metal Co and Digital China Information, you can compare the effects of market volatilities on CITIC Metal and Digital China 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 Metal with a short position of Digital China. Check out your portfolio center. Please also check ongoing floating volatility patterns of CITIC Metal and Digital China.

Diversification Opportunities for CITIC Metal and Digital China

0.81

Correlation Coefficient

CITIC Metal  Digital China

Very poor diversification

The 3 months correlation between CITIC and Digital is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Metal Co and Digital China Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital China Information and CITIC Metal 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 Metal Co are associated (or correlated) with Digital China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital China Information has no effect on the direction of CITIC Metal i.e., CITIC Metal and Digital China go up and down completely randomly.

Pair Corralation between CITIC Metal and Digital China

Assuming the 90 days trading horizon CITIC Metal Co is expected to under-perform the Digital China. But the stock apears to be less risky and, when comparing its historical volatility, CITIC Metal Co is 3.24 times less risky than Digital China. The stock trades about -0.21 of its potential returns per unit of risk. The Digital China Information is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,212  in Digital China Information on September 22, 2024 and sell it today you would earn a total of  106.00  from holding Digital China Information or generate 8.75% return on investment over 90 days.

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

CITIC Metal Co  vs.  Digital China Information

CITIC Metal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Metal Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CITIC Metal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Digital China Information

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital China Information are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Digital China sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CITIC Metal and Digital China

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

The idea behind CITIC Metal Co and Digital China Information 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.