Correlation Between Industrial and China Citic

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

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

Diversification Opportunities for Industrial and China Citic

-0.26

Correlation Coefficient

Industrial  China Citic

Very good diversification

The 3 months correlation between Industrial and China is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial 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 Industrial 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 Industrial and Commercial 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 Industrial i.e., Industrial and China Citic go up and down completely randomly.

Pair Corralation between Industrial and China Citic

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.97 times more return on investment than China Citic. However, Industrial and Commercial is 1.03 times less risky than China Citic. It trades about 0.17 of its potential returns per unit of risk. China Citic Bank is currently generating about -0.04 per unit of risk. If you would invest  615.00  in Industrial and Commercial on November 19, 2024 and sell it today you would earn a total of  81.00  from holding Industrial and Commercial or generate 13.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Industrial and Commercial  vs.  China Citic Bank

Industrial and Commercial

Risk-Adjusted Performance

Good

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

China Citic Bank

Risk-Adjusted Performance

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 Industrial and China Citic

The main advantage of trading using opposite Industrial and China Citic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial 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 Industrial and Commercial 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.