Correlation Between CITIC Metal and Sunwave Communications

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

Diversification Opportunities for CITIC Metal and Sunwave Communications

-0.21

Correlation Coefficient

CITIC Metal  Sunwave Communications

Very good diversification

The 3 months correlation between CITIC and Sunwave is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Metal Co and Sunwave Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunwave Communications 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 Sunwave Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunwave Communications has no effect on the direction of CITIC Metal i.e., CITIC Metal and Sunwave Communications go up and down completely randomly.

Pair Corralation between CITIC Metal and Sunwave Communications

Assuming the 90 days trading horizon CITIC Metal Co is expected to generate 0.2 times more return on investment than Sunwave Communications. However, CITIC Metal Co is 4.95 times less risky than Sunwave Communications. It trades about -0.41 of its potential returns per unit of risk. Sunwave Communications Co is currently generating about -0.13 per unit of risk. If you would invest  786.00  in CITIC Metal Co on October 11, 2024 and sell it today you would lose (81.00) from holding CITIC Metal Co or give up 10.31% of portfolio value over 90 days.

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

CITIC Metal Co  vs.  Sunwave Communications Co

CITIC Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITIC Metal Co 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.

Sunwave Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sunwave Communications Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sunwave Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CITIC Metal and Sunwave Communications

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

The idea behind CITIC Metal Co and Sunwave Communications Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..