Correlation Between China Citic and Dirui Industrial

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

Diversification Opportunities for China Citic and Dirui Industrial

0.87

Correlation Coefficient

China Citic  Dirui Industrial

Very poor diversification

The 3 months correlation between China and Dirui is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding China Citic Bank and Dirui Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dirui Industrial 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 Dirui Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dirui Industrial has no effect on the direction of China Citic i.e., China Citic and Dirui Industrial go up and down completely randomly.

Pair Corralation between China Citic and Dirui Industrial

Assuming the 90 days trading horizon China Citic is expected to generate 1.19 times less return on investment than Dirui Industrial. But when comparing it to its historical volatility, China Citic Bank is 1.63 times less risky than Dirui Industrial. It trades about 0.14 of its potential returns per unit of risk. Dirui Industrial Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,591  in Dirui Industrial Co on September 5, 2024 and sell it today you would earn a total of  79.00  from holding Dirui Industrial Co or generate 4.97% 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.  Dirui Industrial Co

China Citic Bank

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 11 (%) 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.

Dirui Industrial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dirui Industrial Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dirui Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Citic and Dirui Industrial

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

The idea behind China Citic Bank and Dirui Industrial Co 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 CEOs Directory module to screen CEOs from public companies around the world.