Correlation Between China Citic and Bank of Qingdao

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

Diversification Opportunities for China Citic and Bank of Qingdao

0.89

Correlation Coefficient

China Citic  Bank of Qingdao

Very poor diversification

The 3 months correlation between China and Bank is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Bank of Qingdao in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Qingdao 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 Bank of Qingdao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Qingdao has no effect on the direction of China Citic i.e., China Citic and Bank of Qingdao go up and down completely randomly.

Pair Corralation between China Citic and Bank of Qingdao

Assuming the 90 days trading horizon China Citic is expected to generate 2.56 times less return on investment than Bank of Qingdao. In addition to that, China Citic is 1.05 times more volatile than Bank of Qingdao. It trades about 0.03 of its total potential returns per unit of risk. Bank of Qingdao is currently generating about 0.07 per unit of volatility. If you would invest  337.00  in Bank of Qingdao on September 26, 2024 and sell it today you would earn a total of  47.00  from holding Bank of Qingdao or generate 13.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.18%
Values	Daily Returns

China Citic Bank  vs.  Bank of Qingdao

China Citic Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Bank of Qingdao

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Qingdao are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bank of Qingdao may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Citic and Bank of Qingdao

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

The idea behind China Citic Bank and Bank of Qingdao 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 Global Correlations module to find global opportunities by holding instruments from different markets.