Correlation Between CITIC Metal and China Railway

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

Diversification Opportunities for CITIC Metal and China Railway

0.76

Correlation Coefficient

CITIC Metal  China Railway

Poor diversification

The 3 months correlation between CITIC and China is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Metal Co and China Railway Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Railway Constr 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 China Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Railway Constr has no effect on the direction of CITIC Metal i.e., CITIC Metal and China Railway go up and down completely randomly.

Pair Corralation between CITIC Metal and China Railway

Assuming the 90 days trading horizon CITIC Metal Co is expected to generate 0.77 times more return on investment than China Railway. However, CITIC Metal Co is 1.29 times less risky than China Railway. It trades about -0.02 of its potential returns per unit of risk. China Railway Construction is currently generating about -0.07 per unit of risk. If you would invest  755.00  in CITIC Metal Co on December 24, 2024 and sell it today you would lose (11.00) from holding CITIC Metal Co or give up 1.46% of portfolio value over 90 days.

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

CITIC Metal Co  vs.  China Railway Construction

CITIC Metal

Risk-Adjusted Performance

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 somewhat strong basic indicators, CITIC Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Railway Constr

Risk-Adjusted Performance

Very Weak

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

Pair Trading with CITIC Metal and China Railway

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

The idea behind CITIC Metal Co and China Railway Construction 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.