Correlation Between China Citic and Shan Dong

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

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

Diversification Opportunities for China Citic and Shan Dong

0.82

Correlation Coefficient

China Citic  Shan Dong

Very poor diversification

The 3 months correlation between China and Shan is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Shan Dong Dong E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shan Dong Dong and China Citic 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 China Citic Bank are associated (or correlated) with Shan Dong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shan Dong Dong has no effect on the direction of China Citic i.e., China Citic and Shan Dong go up and down completely randomly.

Pair Corralation between China Citic and Shan Dong

Assuming the 90 days trading horizon China Citic is expected to generate 2.03 times less return on investment than Shan Dong. In addition to that, China Citic is 1.07 times more volatile than Shan Dong Dong E. It trades about 0.04 of its total potential returns per unit of risk. Shan Dong Dong E is currently generating about 0.09 per unit of volatility. If you would invest  5,797  in Shan Dong Dong E on September 19, 2024 and sell it today you would earn a total of  143.00  from holding Shan Dong Dong E or generate 2.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

China Citic Bank  vs.  Shan Dong Dong E

China Citic Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Citic sustained solid returns over the last few months and may actually be approaching a breakup point.

Shan Dong Dong

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shan Dong Dong E are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shan Dong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Citic and Shan Dong

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

The idea behind China Citic Bank and Shan Dong Dong E 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.