Correlation Between China Citic and Shaanxi Energy

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

Diversification Opportunities for China Citic and Shaanxi Energy

0.8

Correlation Coefficient

China Citic  Shaanxi Energy

Very poor diversification

The 3 months correlation between China and Shaanxi is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Shaanxi Energy Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Energy Investment 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 Shaanxi Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Energy Investment has no effect on the direction of China Citic i.e., China Citic and Shaanxi Energy go up and down completely randomly.

Pair Corralation between China Citic and Shaanxi Energy

Assuming the 90 days trading horizon China Citic Bank is expected to generate 1.02 times more return on investment than Shaanxi Energy. However, China Citic is 1.02 times more volatile than Shaanxi Energy Investment. It trades about 0.14 of its potential returns per unit of risk. Shaanxi Energy Investment is currently generating about 0.05 per unit of risk. If you would invest  596.00  in China Citic Bank on September 4, 2024 and sell it today you would earn a total of  102.00  from holding China Citic Bank or generate 17.11% return on investment over 90 days.

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

China Citic Bank  vs.  Shaanxi Energy Investment

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.

Shaanxi Energy Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Energy Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shaanxi Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Citic and Shaanxi Energy

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

The idea behind China Citic Bank and Shaanxi Energy Investment 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.