Correlation Between China Citic and JA Solar

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

Diversification Opportunities for China Citic and JA Solar

0.69

Correlation Coefficient

China Citic  JA Solar

Poor diversification

The 3 months correlation between China and 002459 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and JA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JA Solar Technology 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 JA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JA Solar Technology has no effect on the direction of China Citic i.e., China Citic and JA Solar go up and down completely randomly.

Pair Corralation between China Citic and JA Solar

Assuming the 90 days trading horizon China Citic Bank is expected to generate 0.61 times more return on investment than JA Solar. However, China Citic Bank is 1.64 times less risky than JA Solar. It trades about 0.1 of its potential returns per unit of risk. JA Solar Technology is currently generating about -0.22 per unit of risk. If you would invest  662.00  in China Citic Bank on September 15, 2024 and sell it today you would earn a total of  21.00  from holding China Citic Bank or generate 3.17% return on investment over 90 days.

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

China Citic Bank  vs.  JA Solar Technology

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.

JA Solar Technology

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with China Citic and JA Solar

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

The idea behind China Citic Bank and JA Solar Technology 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.